Testimony on Reforming the Rules that Govern the Fed
We need to improve the deliberative process at the Fed by making it more democratic, and by ensuring true diversity of thinking. The Fed has lost the diversity of experience and perspective that used to animate and inform its debates. Power has become excessively centralized and dissents are increasingly rare. There is an urgent need to fix these problems. This piece lists ten specific improvements to the process of choosing Fed leaders, and measures that would empower those leaders, which together would ensure that diverse and informed perspectives are meaningfully represented in Fed policy debates.
The continuing susceptibility of the Fed to bad thinking and politicization reflects deeper structural problems that need to be addressed. Reforms are needed in the Fed's internal governance, in its process for formulating and communicating its policies, and in delineating the range of activities in which it is involved. My testimony focuses on three types of reforms that address those problems:
(1) internal governance reforms that focus on the structure and operation of the Fed (which would decentralize power within the Fed and promote diversity of thinking),
(2) policy process reforms that narrow the Fed's primary mandate to price stability and that require the Fed to adopt and to disclose a systematic approach to monetary policy (which would promote transparency and accountability of the Fed, thereby making its actions wiser, clearer, and more independent), and
(3) other reforms that would constrain Fed asset holdings and activities to avoid Fed involvement in actions that conflict with its monetary policy mission (which would improve monetary policy and preserve Fed independence).
Read the full testimony here:
Reforming the Rules That Govern the Fed April 4 Testimony.pdf
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