WASHINGTON, D.C.: A proposed law which critics say will politicize Federal Reserve policy-making and could even harm the US economy passed the House of Representatives on strong Republican support on Thursday (Friday in Manila).
But the legislation has little chance in the near future of becoming law: It must still be passed by the Senate and then go to President Barack Obama, who has already threatened a veto.
The “Fed Oversight Reform and Modernization Act” would establish a formulaic benchmark to measure the result of the Fed’s monetary policy and allow the Government Accountability Office to assess the central bank’s performance relative to the rule.
It would also restrict the Fed’s ability to support troubled financial institutions to the extent it did in the 2008 economic crisis.
Supporters say it would make the Fed more transparent and accountable in making monetary policy, and prevent it from spending taxpayer money to keep alive insolvent banks.
The FORM Act passed the House by a 241 to 185 vote. Republican House Speaker Paul Ryan applauded the bill.
“If the Federal Reserve explained to the public how it made its decisions, the American people would have greater confidence in them. Families could better plan for the future, invest their money wisely and create opportunity for all of us,” he said in a statement following the vote.
But Fed Chair Janet Yellen warned this week in a strong letter opposing the bill that it would politicize monetary policy and “severely damage the US economy were it to become law.”
It would also “likely lead to… a diminished status of the dollar in global financial markets, and reduced economic and financial stability.”
And the White House said earlier this week that the bill “threatens one of the central pillars of the nation’s financial system and economy.”