Today we are turning the corner on monetary policy. We will soon have a new Federal Reserve Board chairman and could, in an important sense, have an entirely new Board of Governors before too long. We are excited about what this prospective change in personnel can bring in terms of more reliable policy for American economic opportunities. But we are not waiting for personnel changes in the Eccles Building to further our own monetary policy changes from the Hill.
Effective personnel are important. But even the best Fed governors cannot do right by our economy without political-legal institutions that reliably support competitive trade wherever it might lie. Recently we took an important step to improve the rules of the game for both our monetary policymakers and Congress. We marked up three bills that will (1) reduce growth-killing uncertainty that continues to undercut the efficacy of our monetary policies; (2) sweep out the Fed's growth-killing balance sheet distortions; and (3) stop relying on the Fed to spend money that we do not have, and start holding Congress accountable for America's credit policy.
As the legislative process moves forward, we are motivated by the simple truth that, if monetary policy does not work, then our economy cannot work. We know that some forms of monetary policy are clearly better than others. Throughout history, a number of commodities have served its money. Even stone wheels at the bottom of the Pacific Ocean have been respected as a legitimate exchange medium.
And imagine the exchange medium that people might have used not too long ago where we sit today. Certain types of tobacco leaves could have served as money, and we would have spent more time and effort examining whether a particular leaf would reliably store value than we would enjoying that value. The high cost of transacting itself would have slowed or altogether stopped markets from helping goods and services (which include labor) find their most promising opportunities.
Monetary policy can appear complicated, but unless we appreciate its foundational role in producing and delivering the economic opportunities that can and should be readily available across our country, we will continue to fall short of our true potential. Our work on the Committee is dedicated to making sure that does not happen.
Two years ago, my colleague on the House Financial Services Committee, Representative Bill Huizenga of Michigan, spoke at this conference on the eve of our Fed Oversight Reform and Modernization Act or FORM Act. Shortly thereafter, my colleagues and I passed that legislation through the full House of Representatives. This time, we have a chance to move our legislation even further. Our goal now is not only to move a solid set of monetary policy reforms out of the House, but also to place it on President Trump's desk for signature.
Motivation for and Details of Markup Bills
We marked up three reforms that are strong on policy and capable of attracting both deep and broad support. We started by introducing a simple but important strategy to improve how the Fed communicates monetary policies.
Monetary Policy Strategy
Better communication may sound boring. But it is key to reducing growth-killing policy uncertainty that, according to recent Fed research, creates a significant drag on our economy. (1) Our legislation brings greater transparency to how monetary policy reacts to economic changes so that households and businesses have the information they need to make productive decisions.
The Federal Open Market Committee (FOMC) characterizes its conduct of monetary policy as "data dependent." In doing so, however, it leaves households and businesses uncertain about what data matter and how they matter. By providing for the annual adoption of a monetary policy strategy of the Fed's own choosing, as well as a small set of reference policy rules, our legislation will reduce that uncertainty and provide more reliable and stronger support for a dynamic economy.
During our Committee's last Humphrey-Hawkins hearing, (2) Federal Reserve Board Chair Yellen expressed interest in working with our Committee to codify a simple and effective framework for a more transparent and accountable monetary policy. By adopting the best of proposals from both sides of the aisle, this framework promises to reliably support a stronger economy that works for everyone. Testifying before our monetary policy subcommittee, economist Joseph Gagnon from the Peterson Institute shared the following...