Fed oversight Reform and Modernization Act of 2015
Floor Speech
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Mr. HECK of Washington. Mr. Chair, I yield myself 2\1/2\ minutes.
Thus far, this has been an interesting debate that seems to have
mostly revolved around a philosophical point. On the one hand, you have
arguments for increased transparency and accountability. On the other
hand, you have arguments against increased political interference by
this institution. I have always proceeded with the assumption that
philosophical debates are irreconcilable in a lot of regards because
you have to presume that the other side has a point of view.
This is not why I oppose the underlying bill. Although I hasten to
add, why anybody would ever want to give more authority and control
over the levers of the economy to this institution, with its track
record in the last several years, including government shutdowns and
the like, is beyond me. Again, it is a philosophical debate.
Here is what is not debatable: what is proposed in this bill doesn't
work. It does not work. Let's back up. Essentially, color it any way
you want, this bill argues for the adoption of the so-called Taylor
rule. What is that?
The Taylor rule was devised by Professor Taylor of Stanford in the
1990s, looking back at the experience of the economy and what the Fed
had done using a mixture of GDP, GDP potential and inflation, and he
derived a formula. The problem is, again, it does not work. That is why
I have offered this amendment, which would provide the Fed the ability
to opt out, if we get to a stressful situation where clearly the
application of the Taylor rule wasn't working.
Here is the deal. I can prove to you that the Taylor rule wouldn't
work. Let me show you. We have had a couple of instances in recent
history in which we can test the application of the Taylor rule, both
against the Fed's mission to achieve price stability as well as achieve
full employment.
This chart tracks the years 1979 to 1983. The red line is what the
chair of the Fed, Mr. Volcker, utilized in the way of the actual Fed
fund rates. The blue line is the Taylor rule. You can see that for many
years, Mr. Volcker opted for a 5-percent increase over what the Taylor
rule would have been. You can also see that Mr. Volcker was right, that
he broke inflation.
Now, unless we want to return to 12 to 14 percent home mortgages and
a 17 to 18 percent inflation rate, we should----
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Mr. HECK of Washington. I yield myself an additional 30 seconds.
Quickly, here is the chart for the most recent economic crisis. The
redline is what the Fed did. The Taylor rule is the blue line. This is
unemployment.
The Taylor rule would have provided, beginning back in 2010,
substantially higher interest rates when unemployment rates were still
unacceptably high. The Taylor rule doesn't work. Adopt my amendment.
I reserve the balance of my time.
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