Goldman Warns, Congress Is Preparing To Tame The Fed

Tyler Durden's picture

Having already warned that looming political uncertainty is not at all priced-in to US equities, Goldman's Alec Phillips points out that legislation was introduced earlier this week (July 7) in the US House that would attempt to revamp the FOMC's monetary policy process. The bill would require the FOMC to justify to Congress each policy decision relative to a Taylor rule specified in the legislation. While Goldman, do not expect the bill to get very far, but the issue does appear to be a growing focus for some lawmakers and we expect further action on it in the near term.

Via Goldman Sachs,

  • Legislation was introduced earlier this week (July 7) in the US House that would attempt to revamp the FOMC's monetary policy process. The bill would require the FOMC to justify to Congress each policy decision relative to a Taylor rule specified in the legislation.
  • These proposals may attract some attention as they make their way through the legislative process, particularly since the House committee seems likely to pass the bill in the next few weeks. However, the bill is less likely to pass in the full House of Representatives before the November election, and it seems to us very unlikely that the Senate would consider it this year so the probability of enactment appears very low.
  • Earlier this week, two members of the House Financial Services Committee, Reps. Huizenga (R-MI) and Garrett (R-NJ), introduced legislation that would impose new requirements on the Federal Reserve and the FOMC. We do not expect the bill to get very far, but the issue does appear to be a growing focus for some lawmakers and we expect further action on it in the near term.

The bill presumes a Taylor rule for the Fed

The most important change the bill proposes would be to require the FOMC justify its policy decisions to Congress with reference to a Taylor rule. Specifically, the bill would establish a new requirement that the FOMC submit to Congress a report on monetary policy within two days after each FOMC meeting. The report would include a detailed quantitative description of the policy rule the FOMC is following, including whether the fed funds rate, the rate of interest on excess reserves, and/or the discount rate is being targeted, and how the targeted values would change under different inflation and GDP assumptions.

The bill would require the FOMC to explain its own policy rule in relation to a rule like the one Stanford Professor John Taylor described in 1993, where the nominal federal funds rate equals 2% plus the sum of (a) the inflation rate over the prior 4 quarters, (b) one-half of the estimated output gap in percentage terms, and (c) one-half of the difference between the rate of inflation over the prior 4 quarters and 2%. To the extent that the policy rule the FOMC submits under the requirement does not conform to this reference rule, the FOMC would be required to submit a "detailed justification" of the departure from the rule. The legislation would require the Government Accountability Office (GAO) to conduct an analysis and report to Congress on whether the FOMC had complied with the requirements laid out in the legislation. If the FOMC were found to be out of compliance with these requirements, the Federal Reserve Chair would be required to testify in Congress and the FOMC would be subject to an audit by the GAO.

The practical implication of the bill would be that while the FOMC could continue to operate as it currently does, if it opted out of the process established in the bill it could become subject to periodic audits and the Fed chair would have to testify before Congress quite often, potentially after each FOMC meeting (the bill, in a separate section, would increase the semi-annual Humphrey Hawkins testimony to four times a year in any case). In the past, Fed officials have been clear in their opposition to prior proposals to require an audit of monetary policy decisions and we assume the Fed would oppose the recently introduced legislation though we are not aware of any specific comments from the Fed on it.

Further near term action seems likely but enactment is unlikely

The Committee held a hearing on the legislation today (July 10). No vote has been scheduled yet, but we expect the House Financial Services Committee to vote on the bill in the next few weeks. We assume it will pass along mostly party lines. Whether it will receive a vote on the House floor is less clear, since the legislative agenda will be crowded during the limited time Congress will be in session in July and September (the House will be in session for only 25 days between now and the midterm election on November 4). More importantly, regardless of whether the House passes the bill or not, there appears to be very little chance that the Senate would consider, let alone pass, the bill this year.

Next year, if the Republicans manage to take the Senate majority following the midterm election, there might be somewhat greater pressure to hold a vote in that chamber if the House were to pass the legislation. However, even in this case it is far from clear that there would be sufficient support in the Senate, where 60 votes are normally required. Moreover, in the unlikely event that such legislation managed to pass in the Senate, we would expect President Obama to veto it.

Of course, it would not be unprecedented for Congress to amend the Federal Reserve's mandate regarding monetary policy, though it happened only rarely. The last time Congress enacted significant new monetary policy-related requirements was in 1977 and 1978, when Congress reworked the Fed's mandate, required the Federal Reserve Chair to testify semiannually to House and Senate Banking Committees, and established a four-year term, confirmed by the Senate, for the Federal Reserve Chairman and Vice Chairman, among other changes. However, not only was the economic situation different at that point, the political situation at the time very different from the current one as well: both chambers of Congress were controlled by the recently elected President's party, while the Fed Chairman had been appointed by the prior administration.

There has in fact been some bipartisan support over the past few years for much simpler legislation first offered by Rep. Ron Paul (R-TX) to remove the prohibition on GAO audits of monetary policy deliberations. That said, support for more recent efforts appears to be falling along party lines more than it used to. For example, while Rep. Paul's legislation passed the House in 2012 by a vote of 328 to 98, a nearly identical version of that legislation in the current Congress has been co-sponsored mainly by Republicans. The upshot is that while the issue seems likely to remain a subject of political interest among lawmakers, these sorts of policy changes appear unlikely to be enacted into law in the foreseeable future.

*  *  *

The simple question we have is - why is Goldman Sachs bringing this up now?

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TeamDepends's picture

Sure, and we're going to have a positive GDP this year!

ultimate warrior's picture

I miss Ron Paul verbally bitch slapping Ben Bernanke.



CH1's picture

Will never happen, unless they have an even worse monstrosity ready to roll out.

ZerOhead's picture

The Congressional Reserve Bank...

Slave's picture

If by "tame" you mean trick everybody into giving it EVEN more power. Then yes.

TeamDepends's picture

Grab yer shitgums, boys.  The time is now!

CrazyCooter's picture

Well, now that the fed is loaded to the gills with worthless shit all the TBTF banks didn't want, its high time to nationalize the Fed and FUCK THE TAXPAYER!

Can't we just shoot em all and declare sovereignty?



cifo's picture

The bill would require the FOMC to justify to Congress each policy decision relative to a Taylor rule specified in the legislation.

Makes for safer and more profitable insider trading.

Pinto Currency's picture



That would be like Congress.

After the Fed has inevitably run the debt-backed fiat Fed 'Note' USD and US economy off a cliff, then Congress should start to try to modulate the uncontrollable inferno.

wee-weed up's picture

Ha! What if Janet Ben Yellen decides to just say...

"Fuck You!" to Congress?

Hell, the lawless Obozo does it all the time!

booboo's picture

"Ha! What if Janet Ben Yellen decides to just say...

"Fuck You!" to Congress?

Hell, the lawless Obozo does it all the time!"

Where the hell did you think Barry got his " I got a ink machine and a phone" idea from, you didn't think that dope thought up that all by himself did you?

max2205's picture

How a bout nationalizing the banks and give us some fucking interest intstead of feeding it to said banks....

Crawdaddy's picture

Nationalizing worked, umm, when?

ebworthen's picture


Suitcases of cash and diamonds, and a bill called "Federal Reserve Control Act" that gives the FED more control over rewarding banks/corporations/insurers while punishing savers and citizens - if history is any guide.

August's picture

Following in the footsteps of the Congressional Post Office.

Crawdaddy's picture

Franking privelidges are priced in. We should all call congress Monday and ask to speak with Mr/Mrs Soon To Be In A Noose.

jaxville's picture

 What do you think the monetary order behind a unified North American currency will be?  It's time to roll out a new system because the old one is so bad.  No that bad though that we can't employ/empower the same scoundrels who were responsible for the old system.

  Unless there are many swinging from lamp poles, any change in the current monetary order will be mere window dressing.


ejmoosa's picture

Too little. too late....

El Oregonian's picture

If you want to "Correct" this whole global criminal enterprise, first, you have to arrest ALL the Jesuit Order, ALL of them, and their satellite organizations, then you would be on the right track.

Starting with the black pope, Adolfo Nicolás.

jaxville's picture

Wow!  Way to get people from focusing on the real "group" behind all this financial terrorism taking place. Max Keiser would be proud of you.

El Oregonian's picture

They are behind the "Real" group. They've been consolidating their power since 1534.

Crawdaddy's picture

Jesuits are scum. They are the biggest shit disturbers on the face of the planet. Sadly, few are willing to investigate for themselves and see actual evidence. Religious and non-religious are both easily led to believe the magical Joo is the prime world shit disturber. The Jesuits and their satellites created the UN and the UN created te latest incantation of Israel so how can the magic Joo be in charge? These powerful rich guys all sat on the sidelines for over 1900 years? Did the Joos run the Dark Ages and the inquisition? But most don't let facts get in a way of a good story. By the time everyone figures it out, maybe a few good ZH souls will remember these posts and think things through and put the puzzle together.

Da Yooper's picture

From wikipedia

crawdaddy you are wrong & a troll

how much are you paid to spred your filth ?

The United Nations Headquarters complex was constructed in stages with the core complex completed between 1948 and 1952. The Headquarters occupies a site beside the East River, on 17 acres (69,000 m2) of land purchased from the foremost New York real estate developer of the time, William Zeckendorf, Sr. Nelson Rockefeller arranged this purchase, after an initial offer to locate it on the Rockefeller family estate of Kykuit was rejected as being too isolated from Manhattan.


The US$8.5 million (adjusted by inflation US$83.4 million) purchase was then funded by his father, John D. Rockefeller, Jr., who donated it to the city.[6] Wallace Harrison, the personal architectural adviser for the Rockefeller family, and a prominent corporate architect, served as the Director of Planning for the United Nations Headquarters. His firm, Harrison and Abramovitz, oversaw the execution of the design.[7]


Yep you are right christans had a hand in this .....NOT

piss off TROLL

Crawdaddy's picture

Dude you must be a walk-on because that is one lame assed reply.

fervent in spirit's picture

El Oregonian and Crawdaddy have proved one thing at least. When you start to unmask the faces of those who are behind those who are behind the general chaos and disintegration of society at all levels, be ready for heated opposition by those who are either ignorant of the facts, deceived by the lies, or both.

The papacy has hated the protestants with a venomous hatred, and thus has hated the United States which was the great bastion of freedom from Rome's tyrannical persecution. Due to their subterfuge, the Jesuits have been expelled from practically every country in Europe at one time or another. For anyone interested in taking the time to look into it there are interesting articles linking together Rome, Jesuits, Rockefellers, hatred of Protestant America, oil and money.

"Ye shall know the truth and the truth shall make you free" (Jesus' words in John 8:32)

logicalman's picture

Keep it simple.

Greedy parasites are the problem.

It matters not what masks they hide behind.


Freddie's picture

Congress is doing dick to stop the dick-tater from allowing a full invasion of Amerika.  Matt Salmon (R) at least put up a bill to spend the money to send these people back to their families in their home countries.

world_debt_slave's picture

CON-gress only knows how to screw

Da Yooper's picture

The bankers  own the gutless US dual citizen congress this will go no where.

They will get their sheckles worth count on it.

Idaho potato head's picture

Heh, hehheh, ha ha haha, um right.

messystateofaffairs's picture

Yawn. When they end the fed let me know, everything else is theatre.

TeamDepends's picture

THEY will never end the FED.  WE will end the FED or it will end us.

Otto Zitte's picture

In his time Andrew Jackson ended the Fed.

Step up and if you can't do it alone, FIND THE OTHERS.

Without than the legalese bullshit, they are surrounded and outnumbered. 

Do It.

Took Red Pill's picture

You're correct! This is just a way of calming down the people and make it look like they're doing something.

BrigstockBoy's picture

This is when it gets fun because it will be apparent that neither the red team nor the blue team will want to tell the Fed what to do. Expect the word "independence" to be thrown around liberally (pun intended).

royal's picture

The Fed doesn't need to be reformed, it needs to be outright abolished, and the US returned to a sound monetary system backed by Gold.

...unless of course, you're the masochistic type who enjoys losing 10% of the value of your money every year...


If so, Gold isn't for you, because AU delivers what the Fed can only claim -- true price stability and maximum employemnt.


Fuck the Fed. End the Fed.

kill switch's picture


This is quaint..

The NSA will expose these congress critters,,,,,wife swapping,,pedophilia,,,sucking dick...this will end in a fast pace...Without the tame FED BS!!!

hobopants's picture

Ya, one look at who the major campaign contributors are says this isn't going to happen.

robertocarlos's picture

How do you get 500 Congressmen to leave DC? He asks while shaving.

Kaiser Sousa's picture

Fuck the Fed...
and fuck the politicians they command...
if we turn our back on the MoneyChangers worthless script and ignore the government they control they both will fade away...
we give them relevance and power by honoring their farce...
and we can remove it and them via withdrawing from the debt and death paradigm that has ruined humankind...
it can be done starting with saving in real money and starving the banks...

Seize Mars's picture

If you turn your back on playing the game they will put you in a cage. If you resist they will kill you. Dead.
Do you now understand the problem here?

Kaiser Sousa's picture

no i dont because your statement is of fear and at this stage of the war i have none...
therefore, the prospects you mention above r of no consequence...
that is why most will remain slaves of the bankers and their government....
do you understand YOUR problem now?

barre-de-rire's picture

only fools are fearless. fear is usefull,and a dangerous friend for who know how to control it :)

Tall Tom's picture

I am not in a cage...

I am not dead...


Are you?