David Beckworth has a new post on how to freak out the Fed that discusses the Fed Oversight and Modernization Act that passed the Rules Committee in the House. Having passed the Rules Committee means that the bill has already passed the Financial Services Committee, and is on its way to the floor for debate and votes. It has also drawn a lot of attention from FOMC members lately with Janet Yellen having written a letter the House and formally protested the measure in person, and with Lacker having been the latest to weigh in, both of them insisting that it would unduly politicize the Fed in reaction to this development that is hardly surprising. After all, they don’t want Congress butting into their caprice like a bunch of unruly children don’t want a babysitter.
But what is it that they expect? If the Market Monetarist version of the Great Recession is true, then we have a remarkably clear demonstration that monetary policy caprice has a huge down side that we’d rather not repeat.
Though, I’ve had daydreams about Congress taking a few stars out of the Star Chamber, it would have been the path more easily traveled if the FOMC had adopted a rule themselves… Oh, wait…What was that target again? I think the FOMC members have forgotten all about it too.
It’s not my preferred target, I think it stinks, in fact, but if the FOMC had aggressively pursued it since Janet Yellen took the helm, we’d be closer to a comfortable liftoff from the ZLB than we are today, and I doubt the Fed would be facing the kind of political problems it now has. When people feel content with their circumstances, they aren’t so willing to fix stuff that may not be broken.
So I guess the FOMC has a choice. It can fix itself, or Congress fix it, like it or not. There isn’t any going back to the way things were after we were bestowed with the needless, policy-induced Great Recession and all the damage wrought, and they need to wake up to that reality they themselves created.
PS: Those hawks truly are victims of their own success. Perhaps next time, they should endeavor to reach goals that are far more appreciated.