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By Jeb Hensarling - Congress should resist the temptation to use the Fed to advance social policy or fund its favorite programs off-budget. In turn, the Fed should halt its mission creep into fiscal policy and stay out of unrelated partisan congressional debate. Out of the hundreds of federal agencies, commissions and bureaus, arguably none are more independent of congressional checks, balances and accountability than the Fed. But this historic grant of independence from Congress was designed only for the narrow purpose of conducting monetary policy, which today is defined by Congress’s dual mandate to achieve stable prices and maximum employment. Ever…
By Kevin Warsh - The Fed should change its policy regime. It should stop buying mortgage securities immediately. Soon after, it should slow its purchases of Treasury debt. It should not tolerate Fed-financed fiscal expansion. It should unlock the handcuffs imposed by its novel doctrine and render an informed and humble judgment on the state of the economy and the attendant risks to the outlook. Read More
By Judy Shelton - If the most prominent factor behind the continuing high inflation is constricted supply in the face of strong demand, why would the Fed opt to fight inflation by slowing the economy? That’s what paying banks more to leave their financial resources sitting idle will do. Read More
By Joseph C. Sternberg - Between the infrastructure and reconciliation bills in various stages of debate, it’s worth discussing in some depth how all this will be paid for. Government spending is conventionally understood as a matter of increased taxation and debt, a framing that has the virtue of being true. But that conversation is incomplete without also exploring the concept of financial repression—which ultimately underlies both the taxes and debt. Read More
By Judy Shelton - Our nation’s central bank has become too prominent, too political and too powerful. The Fed’s ability to purchase massive quantities of U.S. Treasury securities is the dominant factor influencing interest rates across the board and thus the valuation of financial assets. The entire term structure of bond yields reflecting the relationship between short-term and long-term rates is keyed to the 10-year Treasury note rate. What would that benchmark yield reveal if Fed purchases weren’t distorting the market? The Fed’s prominence not only undermines supply-and-demand interactions for accurately pricing the cost of investment capital; it also compromises…
By Phil Gramm and Mike Solon - Then as now, what drove higher prices was excess demand owing to runaway government spending. Ronald Reagan and Paul Volcker understood. History withholds its wisdom from those who ignore its lessons. Forty years ago this month, the fiscal policy of President Ronald Reagan and the monetary policy of Federal Reserve Chairman Paul Volcker broke the back of the 20th century’s most destructive inflation, ushered in an economic expansion that effectively lasted a quarter of a century, and banished inflation—until now. Read More