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Forbes: Huizenga's Subcommittee Appointment Shows Hope For Fed Reform

Earlier this week, Forbes published a piece detailing why it is important for the Federal Reserve to adopt a rule to determine how it will make decisions regarding monetary policy.  Congressman Huizenga has been an advocate for the Federal Reserve to adopt such a rule and has introduced legislation to increase transparency and accountability at "The Fed." In January, Congressman Huizenga will chair the subcommittee on Monetary Policy and Trade that has direct jurisdiction over how the Federal Reserve operates and conducts business. Below are highlights from the Forbes piece - the full piece if available by clicking on the link below.

A Case For A Monetary Rule

The Federal Reserve has long been the world’s most powerful central bank and has become even more so since the 2008 financial crisis. The Fed chairman not only has wide discretion over the course of monetary policy but also over financial regulation. ... In an uncertain world, rules are necessary to limit power and bring about order. The institutional and property rights structure comprise the rules of the game. To be effective, rules must be enforced and widely accepted. This is as true for rules of the road and sports as it is for monetary rules. ...

The Fed has a dual mandate to promote price stability and full employment, but there is no monetary rule. Monetary policy depends on forecasting the real economy—and the Fed’s forecasting record is dismal. Not one of the Fed’s large staff of top university PhD economists forecast the Great Recession. The Fed chairman did not predict the subprime crisis or the Great Recession, and the Fed’s army of sophisticated models didn’t predict it either.

Actual data is always backward looking, no one knows the future. Yet, Fed Chairwoman Janet Yellen and her Federal Open Market Committee base their decisions about the course of monetary policy—that is, their stance on the benchmark federal funds rate—on guesses about the path of the economy. ...
Given the Fed’s poor history, now is the appropriate time to have a national debate on the issue of rules versus discretion in the conduct of monetary policy, to consider the limits of monetary policy, and to explore alternatives to the current regime. That is why it is essential to reintroduce the “Federal Reserve Accountability and Transparency Act” (H.R. 5018) in the new Congress and for Jeb Hensarling (R-TX), chairman of the House Financial Services Committee, to continue his “Federal Reserve Centennial Oversight Project.” 

With Rep. Bill Huizenga (R-MI) heading the Financial Services Subcommittee on Monetary Policy and Trade in January, there is an opportunity to have a meaningful discussion on the role of the Fed, its powers as delegated by Congress, and the case for a rules-based approach to monetary policy.

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