New Congressional Panel to Review Fed's Interest Rate Decisions
WASHINGTON - The chair of a newly established congressional panel tasked with enhancing Capitol Hill's oversight of the Federal Reserve plans an extensive examination of the central bank's interest rate-setting process.
Representative Frank Lucas (R-OK), chair of the Monetary Policy, Treasury Market Resilience, and Economic Prosperity Task Force, told Reuters that the review will explore whether controlling inflation should take precedence over safeguarding employment.
"A significant number of my Financial Services Committee colleagues and the chairman want to discuss that issue," Lucas said ahead of the panel's first hearing next week. "Is there truly a dual mandate? And how does that affect the primary goal of price stability?"
The Fed's dual mandate, enacted by Congress in 1978, tasks the central bank with promoting price stability and maximizing employment. Currently, both objectives are close to being met: unemployment stands at 4%, while inflation has fallen to 2.6%, approaching the 2% target.
However, the experience during the COVID-19 pandemic, when inflation soared to 40-year highs and the Fed responded aggressively with rapid rate hikes, has raised concerns. Lucas, a congressional veteran with over three decades of experience, intends to investigate whether the Fed's approach was flawed.
Additionally, the panel will examine long-standing issues such as whether the Fed should incorporate monetary policy rules into its decision-making. While not completely eliminating discretion, such rules could provide greater transparency and predictability for the public.
"If price stability is the primary focus and you want market forces to be able to make decisions, a more rules-based approach provides certainty," Lucas explained.
Lucas acknowledged the challenges of amending the Federal Reserve Act given the narrow Republican majorities in both chambers of Congress and the long-standing dual mandate. However, he expects the review to culminate in potential legislation, reports, or recommendations to the Fed.
The timing is crucial, he said, as the Fed is currently conducting its own review of its operating framework, which was adjusted in 2020 to place greater emphasis on unemployment. Critics argue that this contributed to the delayed response to inflationary pressures that began accumulating in 2021.
"These issues are pertinent at this juncture," Lucas concluded.
The panel, composed of eight Republicans and six Democrats, will also delve into the functionality of the U.S. Treasury market alongside monetary policy.