July 16, 2015

Shelby Statement at Hearing on the Fed’s Semiannual Monetary Policy Report

WASHINGTON, DC – Thursday, July 16, 2015 – U.S. Senator Richard Shelby (R-Ala.), Chairman of the United States Senate Committee on Banking, Housing, and Urban Affairs, today delivered the following opening remarks during a full committee hearing on “The Semiannual Monetary Policy Report to the Congress.”

The text of Chairman Shelby’s remarks, as prepared, is below.  

“Today we will receive testimony from Federal Reserve Chair Janet Yellen.  These semi-annual hearings are an important part of the Committee’s oversight of the Fed and are among the few opportunities we have for public discussion with the Fed Chair. 

“The Fed plays an important role in the overall economy, both in managing the supply of money and monitoring the health of the financial system.

“Through its quantitative easing and other special programs, the Fed’s balance sheet has expanded to an unprecedented size of four-and-a-half trillion dollars.

“To put it into perspective, nearly 20 percent of all Treasury securities are held on the Fed’s balance sheet.

“Furthermore, rather than using the proceeds from matured mortgage-backed securities to reduce its balance sheet, the Fed continues to re-invest these proceeds into even more MBS.

“In addition, the Fed continues to hold down interest rates despite potential adverse effects on the U.S. economy, including the negative impact on household savings.

“Past announcements by the Federal Open Market Committee have stated that it would adjust its interest rate policy once unemployment fell to 5.6 percent. 

“The Fed’s estimates, however, show an unemployment rate of 5.3 percent or lower for 2015, and yet, interest rates remain unchanged.

“The Monetary Policy Report released yesterday states that the Fed will keep rates low, even though ‘the unemployment rate [will soon] be at or below … its longer-run normal level.’

“This is concerning because pushing the economy beyond its normal level can have negative effects, as we have seen with economic bubbles in recent history.

“More than ever, the financial markets have become heavily dependent on the Fed’s monetary policy decisions, which makes transparency even more important.

“The Fed is often described by its own officials as the world’s most transparent central bank -- or at least one of the most transparent. 

“But, it is worth noting that in several respects, Federal Open Market Committee monetary policy decisions are less transparent than at other central banks, including the European Central Bank and the Bank of England. 

“For example, the Bank of England has more annual meetings and a shorter delay in publishing its minutes than the Fed, and both banks issue more monetary reports per year.  In addition, the European Central Bank has twice the number of press conferences.

“So it seems that some aspects of the Fed’s transparency can be improved.

“Similar concerns exist regarding the Fed’s regulatory authority.

“The Fed’s Dodd-Frank and CCAR stress tests determine the fate of U.S. banks, but the Fed does not reveal exactly how the banks will be tested or in what ways they have fallen short. 

“Similarly, many banks have been forced to file and re-file their living wills without a thorough explanation from the Fed on why the submissions failed.

“The Fed must provide more complete explanations of its actions in order for the financial system and the U.S. economy to function effectively.

“Chair Yellen, we look forward to your testimony and hope that you will be able to shed more light on some of the Fed’s actions and practices.”