'Shrouded In Mystery To Most Of The American People': Bill Huizenga Slams Federal Reserve

2 hours ago

During a House Financial Services Committee hearing, Rep Bill Huizenga (R-MI)

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00:00The gentleman from Michigan, Mr. Huizinga, who also is vice chairman

00:04of the full committee, is now recognized for five minutes.

00:07Thank you, Mr. Chairman, and Dr. Cohn, good seeing you again.

00:11It has been a while.

00:12I was around the first time you were in, but the Federal Reserve System,

00:20and there's been a lot of talk about the dual mandate, it actually is focused

00:23on three key monetary policy objectives, maximum employment, price stability,

00:29and moderation of long-term interest rates.

00:31Somehow that seems to get sort of forgotten.

00:34I'm going to ask you a too high, too low, or about right for a response to this question.

00:43Are interest rates right now too high, too low, or about right?

00:47Dr. Cohn.

00:49So I don't have a judgment on what, you know, the right level.

00:53They're embodying people's expectations.

00:55I don't have time for an explanation.

00:58Do you think they're about right?

01:00They're about right for what people expect.

01:02Okay. Mr. Wang.

01:04Today the 10-year yield is about 4%.

01:06I think that's about right.

01:08Okay. Dr. Michel.

01:11Sure. I have really no idea, and I don't think they do either.

01:17Okay. Mr. Kozol.

01:18They're slightly restrictive, which I think is appropriate given inflation right now.

01:22So too low?

01:23Slightly too high.

01:24Too high.

01:25Appropriate, but higher than they should be in the long run.

01:27Great. So I obviously, I wasn't here for the creation of Dodd-Frank 2010.

01:32I got elected in 2010, but I've been living with the echo effects of it ever since.

01:37I believe that today the Fed has even more power, more influence,

01:41and more control over our financial system than ever before, while improvements,

01:46as Dr. Cohn, you had said, have happened in transparency,

01:50partially because of the push that came out of this committee.

01:54It does, I believe, remain shrouded in mystery to most of the American people.

01:59And frankly, we're not talking about groundbreaking stuff right now.

02:02I mean, these are things that we talked about over a decade ago,

02:06and we were asking many of the same questions.

02:08How could the Fed be more transparent to Congress and the American people?

02:12How could they communicate its policy choices better, and then direct,

02:18and the direction it was taking so that consumers

02:20and investors could make informed decisions about today and the future?

02:25Dr. Mischel, let's start with you.

02:27You noted and cited a paper by economist John Taylor, one of my favorites,

02:34titled Monetary Policy Rules Work and Discretion Doesn't.

02:38As you know, Dr. Taylor became famous for the Taylor Rule,

02:42which essentially has a suggestion

02:44of guides how central banks could adjust interest rates to stabilize economic activity.

02:49I had suggestion when Chair Yellen was in here that she could create the Yellen Rule.

02:55It didn't really matter what it was, but were there some rules that were published?

03:00Now, everybody says, well, we do this behind the scenes,

03:02but the problem is it's behind the scenes,

03:04and nobody really knows what they are doing.

03:07They're seeing a guessing game.

03:09So could you explain to the committee, Dr. Mischel, how something like the Taylor Rule

03:14or the Yellen Rule or any other rule could have impacted the Fed's decision

03:18during the most recent economic downturn?

03:20Sure. If we go by the standard, any of the standard rules, really,

03:24that are accepted by a macroeconomist, then in that case, yes,

03:28their rates are too restrictive at the moment.

03:31If they had been following a rule, at the very least,

03:35we would know what they're doing and why they're doing it.

03:38And by we, I mean you guys, Congress, and I think that's the most important thing.

03:44There's no way to judge how good or how badly they're doing,

03:48because you don't really know what they're doing.

03:51And that's why a rule is important.

03:53Would something like the Form Act, which had been a piece of my legislation,

03:57would that be a good starting point?

03:59No, I think that's a perfect starting point,

04:00because it provides what we call a flexible rule.

04:03They put a base rule in place.

04:05They can pick the rule that they like, and they can stick to it until they don't,

04:10as long as they explain to Congress what they're doing that's different and why.

04:15I'm running out of time, so I'm having to jump around here a little bit.

04:19Obviously, the Fed now sets rates administratively, partly through interest

04:24on reserve balances, and there's significantly more reserves in the system now.

04:29I don't want to put words in Dr. Cohen's mouth, but it almost sounded

04:33like you said it doesn't really matter what the reserves are.

04:36And, I mean, what I need to know, though,

04:40is has the Fed incentivized financial institutions to hoard reserves

04:44instead of putting capital to work for the real economy?

04:48I think the liquidity regulations put a premium on holding liquidity,

04:55and they need to look carefully at that

04:57as to whether they're over-incentivizing holding liquidity.

05:00I don't think they are.

05:01It's important for financial stability.

05:04So I agree that there are adjustments, Mr. Wang said, to the leverage ratio

05:11that could be made that enable banks to intervene more aggressively

05:18in stabilizing the Treasury market, and that would be helpful.

05:22For example, exempting reserves from the leverage ratio.

05:27Okay. The time has expired.

05:29We may be following up with some written questions.

05:31I yield back.

05:32The gentleman yields back.

05:33The Chair now recognizes the gentlewoman from California,

05:36the ranking member of the full committee, Ms. Waters.

'Shrouded In Mystery To Most Of The American People': Bill Huizenga Slams Federal Reserve

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