WASHINGTON — The Federal Reserve’s policies to encourage recovery from the 2008 financial crash helped the rich but not average Americans, which shows the need for more accountability for the Fed, several experts from conservative think tanks told a House subcommittee Wednesday.
The hearing of the House Subcommittee on Monetary Policy and Trade comes on the heels of the House passing a bill that contains provisions to make the Fed more accountable and transparent to Congress. It still needs Senate approval.
Committee members and witnesses alike advocated for greater congressional oversight of the Fed’s activities.
“Congress created the Fed, Congress is in charge of the Fed. The whole issue is that Congress needs to have these kinds of discussions with the Fed,” said Paul Kupiec, a resident scholar at the conservative American Enterprise Institute.
But Karen Dynan, a former chief economist of the Treasury and scholar at the Peterson Institute for International Economics, said that some provisions of the bill would limit the Fed’s ability to help the economy.
Economies perform best when monetary policy is insulated from short-term political interests, Dynan said.
Kupiec and Alex Pollock, distinguished senior fellow at R Street Institute, which advocates limited government and free markets, criticized the Fed’s policies after the recession as benefitting the wrong people.
The Fed’s decision to use quantitative easing policies benefited the highest income earners because they are the ones with \ houses and the assets, according to Kupiec. While the effect may have been unintended, he said, the result was that average households and small businesses have been left behind in the economic recovery.
Pollock said that speculators and the government itself benefit from the Fed’s current policies.
“The Fed has been taking money from savers in order to give to borrowers,” Pollock said.
Dynan, however, cited recent Brookings Institution research that monetary policy mainly affects job creation and does not raise inequality.
According to Norbert Michel of the conservative Heritage Foundation, the Fed’s monetary policy has not been productive for the economy because money in excess reserves is not being used and that neither the frequency nor the severity of recessions has decreased since the Fed has been in existence.
“Monetary policy is not working with mainstream America,” Michel said.
When asked for comment, the Federal Reserve pointed to a January speech that Chairwoman Janet Yellen gave in which she addressed concerns from savers who want higher rates as well as borrowers who want lower rates.
“At the end of the day, we all benefit from plentiful jobs and stable prices, whether we are savers or borrowers—and many of us, of course, are both,” Yellen said in the speech.