The Fed At 100: Policy Debate

With the Federal Reserve turning 100 this year, the House Financial Services Committee recently held a hearing aimed at examining the Fed’s legacy and discussing how to improve the Fed’s performance going forward. Perhaps not surprisingly, much of the debate centered on the Fed’s quantitative easing policies.

In his opening remarks, Dr. Allan Meltzer, a professor of Political Economy at Carnegie Mellon, criticized Congress for not effectively scrutinizing the Fed, especially regarding QE. “One of the great failures of recent years has been the failure of Congress to find an effective way of providing Congressional oversight,” Meltzer said. “We have an agency which has doubled and then redoubled the size of its balance sheet without any vote by the Congress to spend that amount of money. Trillions of dollars.”

Dr. Josh Bivens, Research and Policy Director at the Economic Policy Institute, suggested that it’s “premature” for the Fed to “begin tapering its own support for the economy.” Although he acknowledged “uncertainty” regarding how much QE has boosted the economy, Bivens maintained that “none of the estimates say that it has damaged economic activity or employment growth over that time.”

Alex Pollock, a Resident Fellow at the American Enterprise Institute disagreed, arguing that the Fed’s “massive manipulation of government debt and mortgages has almost certainly induced a lot of new systemic interest rate risk into the economy” along with “a remarkable concentration of interest rate risk into the balance sheet of the Federal Reserve itself.”