June 21, 2016

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

WASHINGTON, DC – Tuesday, June 21, 2016 – 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 regarding the Fed’s semiannual report on monetary policy.

“While Humphrey-Hawkins testimony is a key part of Congress’ oversight of our nation’s central bank, it is not sufficient to provide Congress and the American public with a full picture of Fed policymaking.

“I have often remarked during these hearings about the importance of striking the right balance between transparency and independence. 

“One of the Fed’s stated reasons for maintaining its independence is to avoid politicizing its decisions. 

“I agree that politics have no place at the Federal Reserve.  While the line between politics and policy can be quite fine, it should, nonetheless, be clear and unambiguous.

“The Fed should act in a manner consistent with its statutory mandate in the interest of the stability of the U.S. economy whether or not such policies align with the goals of Congress or the Administration.

“Our central bank is independent, and should remain so.  The desire to preserve the Fed’s independence, however, should not preclude consideration of additional measures to increase the transparency of the Board’s actions.

“In fact, some have argued that better disclosure of monetary policy strategy could actually bolster independence. 

“Earlier this year, a prominent group of economists, including three Nobel Prize winners, agreed in a statement that ‘…publicly reporting a strategy helps prevent policy makers from bending under pressure and sacrificing independence.’

“The Fed continues, however, to resist calls by Congress to disclose monetary rules, even though it claims to use such rules regularly. 

“In its public communications, the Fed has veered further away from data-driven analysis towards the exercise of even more discretion.

“For example, rather than adhering precisely to its stated goals for inflation and employment, the Federal Open Market Committee appears to base certain decisions on factors such as ‘financial and international developments’ that cannot be derived from quantitative analysis.

“Similarly, the Fed’s regulatory conduct has become increasingly opaque and complicated.

“This is demonstrated by the inherent complexity and overlap in its capital and liquidity rules, stress testing, and resolution and recovery planning.

“Two weeks ago, a panel of experts testified before this Committee that complex regulations might actually increase rather than decrease risk in the banking system.

“They also criticized the lack of analysis and transparency in the rulemaking process.

“This is especially true of Basel rules established by an international committee and imposed by domestic regulators on our institutions, without adequate tailoring.

“The Fed did not even do its own quantitative study for Basel 3, as it did for Basel 1 and 2.

“It instead relied on the Basel Committee’s analysis, which included data from only 13 U.S. banks out of the 249 banks that were studied.

“Such an approach is concerning.  The Fed should perform rigorous analysis, not only for each rule, but also on the cumulative impact of capital and liquidity regulations.

“If our banking regulators are unable or unwilling to conduct such analysis, then we should consider mandating it.

“Even the European Commission analyzes these factors in its regulatory framework. 

“In a recent Call for Evidence, it solicited feedback from the public to ‘…evaluate the interaction between financial regulations and assess their cumulative impact.’

“We should expect no less from our own regulators. 

“Chair Yellen, I look forward to your testimony today and your thoughts on these important issues.”