Today, the Monetary Policy and Trade Subcommittee held a hearing on the international impacts of the Federal Reserve's quantitative easing program. Below are Vice Chairman Huizenga's remarks as prepared:
The U.S. Federal Reserve System or the “Fed” was created in 1913 in response to a series of economic crises early in the 20th century. Although the Fed was created as an independent agency deriving its power from Congress, over the past 100 years, the Fed's power has significantly expanded.
While originally created to supervise and monitor the banking systems in the United States, the Fed's role has continued to grow seemingly unchecked into its current position of being a lender of last resort to banking institutions that require additional credit to stay afloat.
Given the interconnectedness of the global financial system, there is no doubt that the Federal Reserve's monetary policies have significantly impacted the international markets and foreign economies. With the implementation of artificial near-zero interest rates, QE1, QE2, QE3 and Operation Twist, the Fed has made an attempt to stimulate the domestic economy by using an unprecedented level of interventionist policies. However, the result of this experiment has caused investors to take on increased risk and look internationally in search of higher returns.
As capital flowed from the U.S. to emerging market economies, it caused several foreign currencies to rise in value. However, as rumors began to swirl in mid-2013 that the Federal Reserve would begin tapering its purchases of government securities earlier than expected, investors began to react quickly, selling off their stakes in foreign currencies across the globe.
Mr. Chairman, as this Committee has continued to examine and debate the effects of the Fed's multiple iterations of Quantitative Easing and what impact it has had on the U.S. economy, there has been very little discussion regarding its effects on international markets and foreign economies. I look forward to hearing from our witnesses today to learn more.
What we learn today should not only inform our own understanding of the increasingly global and complex macroeconomy, but also contribute to our efforts to enact reforms to our own Federal Reserve System as it hits its 100th anniversary milestone.
