Open Letter to Senator Rand Paul
August 23, 2015
"We read with interest your August 21 Bloomberg View that calls for “a thoughtful congressional discussion of the pros and cons of a more thorough audit” of the Federal Reserve. While we share your desire for effective congressional oversight of the Federal Reserve, we strongly disagree on the best way to do it.
"In our democracy, Congress must hold the Fed accountable for achieving its economic and financial stability mandate. Congress has wisely delegated circumscribed authority over monetary policy and the lender of last resort function to the Federal Reserve. Doing so is consistent with long experience showing that central bank operational independence helps secure price stability and that the lender of last resort bank can prevent and mitigate financial crises. But for this to be sustainable, Congress must retain sufficient oversight to guarantee that the Fed uses it powers in a manner consistent with its legal mandate. To take but one of many examples, no one wants the central bank to bail out insolvent banks.
"On this much, we agree.
"However, you go on to suggest that the current level of Fed transparency is insufficient to achieve the required level of accountability. While we would have agreed with this view in 1990, we strongly disagree today. It would be difficult to overstate the Fed’s shift toward transparency over the past two decades. Before 1994, the Federal Open Market Committee (FOMC) routinely altered monetary policy without informing the public! Today, we have a clearly stated policy framework, FOMC meeting statements, press conferences, minutes, quarterly publication of participants’ economic and interest rate projections, officials’ speeches, testimony, staff reports, and the list goes on. The information flow is so voluminous that we doubt there is any single person who can digest it all in a timely way.
"Even the most sensitive information regarding specific Fed bank counterparties is now fully disclosed. For example, anyone who wishes to see the details of each Fed loan (including size, interest rate, maturity, collateral, etc.) can find it here with a lag of about two years."
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August 23, 2015
"We read with interest your August 21 Bloomberg View that calls for “a thoughtful congressional discussion of the pros and cons of a more thorough audit” of the Federal Reserve. While we share your desire for effective congressional oversight of the Federal Reserve, we strongly disagree on the best way to do it.
"In our democracy, Congress must hold the Fed accountable for achieving its economic and financial stability mandate. Congress has wisely delegated circumscribed authority over monetary policy and the lender of last resort function to the Federal Reserve. Doing so is consistent with long experience showing that central bank operational independence helps secure price stability and that the lender of last resort bank can prevent and mitigate financial crises. But for this to be sustainable, Congress must retain sufficient oversight to guarantee that the Fed uses it powers in a manner consistent with its legal mandate. To take but one of many examples, no one wants the central bank to bail out insolvent banks.
"On this much, we agree.
"However, you go on to suggest that the current level of Fed transparency is insufficient to achieve the required level of accountability. While we would have agreed with this view in 1990, we strongly disagree today. It would be difficult to overstate the Fed’s shift toward transparency over the past two decades. Before 1994, the Federal Open Market Committee (FOMC) routinely altered monetary policy without informing the public! Today, we have a clearly stated policy framework, FOMC meeting statements, press conferences, minutes, quarterly publication of participants’ economic and interest rate projections, officials’ speeches, testimony, staff reports, and the list goes on. The information flow is so voluminous that we doubt there is any single person who can digest it all in a timely way.
"Even the most sensitive information regarding specific Fed bank counterparties is now fully disclosed. For example, anyone who wishes to see the details of each Fed loan (including size, interest rate, maturity, collateral, etc.) can find it here with a lag of about two years."
More >>
