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Fed's Defiance of Law Harms Economic Outlook

Fed's Defiance of Law Harms Economic Outlook
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By Tuesday, 12 November 2019 07:52 AM Current | Bio | Archive

Federal Reserve chairman Jerome Powell is scheduled to testify Nov. 13 before the Joint Economic Committee, chaired by Sen. Mike Lee, R-Utah, on “The Economic Outlook.”

By no means is the current state of the economy as poor as some in the media have made it out to be. As Dr. Walter Block, the Chairman of the Economics Department at Loyola University New Orleans, wrote on Nov. 7, it is extremely unlikely that the United States is currently entering a recession, thanks in large part to the low unemployment that has come from the White House’s deregulatory agenda. Unemployment is sitting at 3.7 percent as a result, half of what it was just a few years ago.

At Wednesday’s hearing, Powell will likely parrot this information, as he has done in the past. What is less likely, however, is that he will go through the litany of ways the Fed itself is jeopardizing the nation’s economic health by undercutting the deregulatory agenda that has made it all possible.

Recently, the Fed has been ignoring not only deregulatory executive orders from the White House, but also laws from Congress – the very institution that created it in the first place. In particular, it has engaged in massive salutary neglect of the Congressional Review Act (CRA), which stipulates that all federal agencies, even independent ones, submit reports of their proposed rules to Congress and the Comptroller General before taking effect. If this defiance from the most powerful economic agency in the world doesn’t stop soon, it could become devastating to the low-regulatory, low-spending environment that has made the economy great, and it is Congress’ job to rein it in.

Case in point: at the end of October, the Government Accountability Office (GAO) found that the Fed ignored the CRA by issuing Supervision and Regulation Letters, billed as “memos,” on bank regulations. Only, per the GAO, they were not really memos. They were rules – “designed to implement, interpret, or prescribe law or policy” – that never went through the full rule-making process. Despite being created without the required oversight, the Fed decisions have very serious implications for banks and could jeopardize their solvency and livelihood. That’s certainly not good for the health of the economy.

Before the GAO determined the Fed didn’t comply with the law, it stated that “[Federal Reserve Bank] explained it is currently reviewing recent guidance from the Office of Management and Budget (OMB) on compliance with CRA.” Now that the GAO review has been completed, Powell, in his Wednesday congressional appearance, needs to be asked whether the Fed’s own analysis has been complete. Does it agree with the GAO’s assessment, and if so, will it abide by the CRA moving forward and rescind its “memos?” Receiving these assurances will be critical to protecting the White House’s deregulatory agenda that is keeping the economy booming.

Finding out from Powell whether or not the Fed has accepted the GAO’s interpretation of the CRA is especially important because the Fed’s making of policy out of thin air doesn’t stop here. In August, the central bank also announced it will create its own real-time payment system, a massive new regulatory undertaking that is coming without any regard for what the law allows, what is best for the U.S.’s competitiveness in the global economy, or what the private sector has already done.

The Fed’s own system, which will allow consumers to send and receive payment without delay, came despite other companies already spending $1 billion of their own money to provide these same capabilities, and experiencing great success at doing so. That clashes with not only the Monetary Control Act, which says the Fed can only get involved in the payment industry if the private sector doesn’t have a firm grasp, but also the CRA as well since it will cost more than $100 million and have “significant effect” on competition.

At the end of September, the Fed refused to give Congress a direct answer on whether their system would be interoperable with the private sector systems. If it’s not interoperable, it will lead to a Fed-run monopoly, billions of dollars of innovation going to waste, and the U.S. losing even more ground to the European Union, the United Kingdom, Poland, and South Africa in the payment race. That would be devastating to the financial system and economy at large, and it can’t be tolerated.

Lee’s Joint Economic Committee has to ask Powell whether the Fed Board has also began reviewing if FedNow conflicts with the CRA as well. Beyond that, though, it has to ask the chairman to finally be straight with Congress and answer whether FedNow will be interoperable. If he answers in the affirmative, members must also must follow up and ask whether it will offer the same flat, nondiscriminatory pricing structure that the private sector is currently sing to ensure the entirety of the banking system can utilize real-time payment technology in the near future.

The U.S. economic outlook isn’t bleak, but, given its power, the Fed’s lawlessness and ignorance of Washington’s current deregulatory atmosphere can certainly change that.

The central bank is constantly making its own rules, irrespective of what the law actually says it is allowed to do. Its mentality – that bureaucrats know better than the private sector, that is fingers must always be in everything – is the biggest threat to the nation’s sound economy today. It must be stopped before it’s too late. That starts with a long conversation with Powell himself.

 Dr. Michael Busler, Ph.D., is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.

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The central bank is constantly making its own rules, irrespective of what the law actually says it is allowed to do.
fed, laws, economic, outlook
Tuesday, 12 November 2019 07:52 AM
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