Fed Reserve & the Presidential Campaign: Where Candidates Stand
Presidential candidates support initiatives that could change the structure of the Federal Reserve’s policymaking.
Three of the five candidates running for US president – Donald Trump, Ted Cruz and Bernie Sanders – have said they supported initiatives that would subject the Federal Reserve’s policymaking to greater scrutiny, or change its policy framework.
Here are details of the candidates’ views and the two proposed bills:
The Republican frontrunner tweeted in February:
This was in reference to an “Audit the Fed” Senate bill that the central bank fiercely opposes. He has said the Fed played a role in stoking asset bubbles and predicted a “very massive recession.” A spokeswoman declined to elaborate on Trump’s views on Fed independence.
Last year, before the Fed raised rates in December, Trump accused the the central bank of keeping rates low at the bidding of President Barack Obama, something the White House has denied.
Janet Yellen is highly political and she’s not raising rates for a very specific reason: because Obama told her not to. He doesn’t want to see a big bubble burst during his administration.Trump told a news conference in November
The No 2 Republican candidate supports Fed audits and a commission to consider a monetary rule tied to gold rather than discretion, according to spokeswoman Catherine Frazier. The United States dropped the gold standard in 1933.
In a Republican debate in October, Cruz said:
I think the Fed should get out of the business of trying to juice our economy and simply be focused on sound monetary policy and monetary stability, ideally tied to gold.
The No 2 Democratic candidate, who as senator backed Audit the Fed, said in an emailed statement that such an annual policy review would help make the Fed “a more democratic institution that is responsive to the needs of ordinary Americans rather than the billionaires on Wall Street.” He also opposes Fed payments to banks on excess reserves.
In a New York Times column published in December, Sanders wrote:
To rein in Wall Street, we should begin by reforming the Federal Reserve...The sad reality is that the Federal Reserve doesn’t regulate Wall Street; Wall Street regulates the Fed.
Sanders also criticized the way Fed officials are selected:
Banking industry executives must no longer be allowed to serve on the Fed’s boards and to handpick its members and staff. Board positions should instead include representatives from all walks of life – including labor, consumers, homeowners, urban residents, farmers and small businesses.
Today, bankers and heads of business, industry, unions, and community groups and organisations serve as district Fed directors.
Hillary Clinton, John Kasich
Clinton, the Democratic frontrunner, and the third-place Republican, Kasich, have not commented publicly on Fed policy independence.
The Federal Reserve Transparency Act, known as “Audit the Fed”, was introduced by Republican Senator Rand Paul early last year.
It would instruct the Government Accountability Office (GAO), a non-partisan congressional watchdog agency, to review and evaluate the Fed’s monetary policy decisions, repealing a decades-old firewall between the GAO, which now reviews other Fed activities including bank regulation, and policy decisions on interest rates.
The bill has struggled to gain Senate support and was referred to a committee.
The Fed Oversight Reform and Modernization Act (FORM), sponsored by Republican Representative Bill Huizenga, passed the House in November.
Among other changes to Fed structure and bank supervision, the bill would tie policy decisions to a single “directive” rule.
An audit could be launched or congressional testimony called if the GAO determined the Fed strayed from the rule. The bill was sent to the Senate and also referred to its banking committee.
GAO Managing Director Orice Williams told Reuters that, were either of the bills to become law, the agency would take a non-partisan approach and hire experts as needed to do the job.
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