The House Financial Services Committee, chaired by Rep. Jeb Hensarling, R-Texas, held a hearing earlier this month titled "Legislation to Reform the Federal Reserve on Its 100-year Anniversary."

To mark the occasion, senior Republicans have drafted H.R. 5018, a bill called the Federal Reserve Accountability and Transparency (FRAT) Act. So in a sense the committee is throwing a FRAT party in the Fed's honor, an invitation Fed Chair Janet Yellen is less than eager to accept.

The principal authors are Reps. Bill Huizenga, R-Mich., vice chairman of the Subcommittee on Monetary Policy and Trade, and Scott Garrett, R-N.J., chairman of the Subcommittee on Capital Markets and Government Sponsored Enterprises. Hensarling is backing this bill very strongly.

Readers who would like to study this first draft are invited to follow the link to the bill and the staff memorandum that explains it. However, this draft will certainly go through several, perhaps many, more drafts if it becomes law. The most hopeful sign for the sponsors may be that Sen. Sherrod Brown, D-Ohio, is in line to head the Senate Banking Committee in the next Congress, and he has established himself as one of the most outspoken advocates of financial reform.

The hearing featured Stanford economics professor John Taylor, by definition the leading expert on the "Taylor rule," which he devised to help guide central banks toward a monetary policy that financial markets can understand and that fosters stable interest rates and acceptable economic growth in the long run. Taylor was influential in devising the monetary policy provisions of the bill, which are rather complicated but calculated to stop short of mandating a strict rule.

Section two of H.R. 5018, the main body of the bill, titled Directive Policy Rules of the Federal Open Market Committee (FOMC), sets forth a Rube Goldberg-like process that takes a recipe of prescribed ingredients, including a "reference policy rule," whirs and spins and spits out a directive policy rule that the FOMC must either follow or explain why it is deviating. If the directive policy rule departs significantly from the reference policy rule, the Government Accountability Office (GAO) is required to swing into action and conduct an audit within seven days to determine whether the FOMC has complied with the terms of the FRAT Act.

If the GAO finds the Fed not to be in compliance, the Fed chairman has some explaining to do to the congressional banking committees within seven days, and the Fed could be subjected to a more comprehensive audit of its monetary policy.

Thus the proponents have combined in one bill two ideas the Fed hates: 1) monetary policy rules, and 2) GAO audits.

The proponents' position is that it has accommodated the Fed's views by allowing the Fed to deviate from the prescribed rule as long as it discloses why it is doing this.

Hensarling has also made a big point, in an interview with CNBC's Rick Santelli on July 17 and in his questioning of Yellen the previous day that back in 1995, Yellen allowed that a monetary rule could be useful to the Fed. However, she has stated bluntly that the Fed will not commit itself to any mathematical formula for determining monetary policy. For this bill to stand a chance in the next Congress, the sponsors or someone else will have to find a way to bridge the gulf that now exists.

(Archived video, witness statements, the draft bill and the staff memorandum can be found here.)