S.1647 - Regular Order for Investments of the Federal Reserve Act; ROI of the Federal Reserve Act (119th Congress)
Summary
S.1647, the "Regular Order for Investments of the Federal Reserve Act," aims to amend the Federal Reserve Act by limiting the types of assets Federal Reserve banks can purchase. It also mandates additional reporting requirements and the use of Generally Accepted Accounting Principles (GAAP) for financial filings. The bill seeks to increase transparency and accountability of the Federal Reserve System.
Specifically, the bill restricts the Federal Reserve from purchasing Treasury bills with maturity terms exceeding three years and prohibits the purchase of mortgage-backed securities and direct or indirect holdings of common stock acquired after the enactment of the Act. Furthermore, it requires annual reports to Congress on the status of the middle class and the impact of Federal Reserve actions on small business lending.
Finally, the bill mandates that the Federal Reserve adhere to GAAP accounting principles and use mark-to-market valuations for financial estimates, enhancing the accuracy and reliability of financial reporting.
Expected Effects
If enacted, this bill would change the investment practices and reporting requirements of the Federal Reserve. It would limit the Federal Reserve's ability to respond to economic crises through certain asset purchases. The increased transparency could lead to greater public scrutiny and potentially influence monetary policy decisions.
Small businesses may see changes in the availability of credit, and the middle class could be affected by any shifts in Federal Reserve policies. The Federal Reserve's balance sheet and lending facilities would be subject to greater oversight, potentially impacting their effectiveness.
Overall, the bill aims to constrain the Federal Reserve's actions and increase accountability, which could have both positive and negative consequences for the economy and financial markets.
Potential Benefits
- Increased transparency of Federal Reserve activities through mandated reports on the middle class and small business lending.
- Greater accountability of the Federal Reserve by requiring adherence to Generally Accepted Accounting Principles (GAAP) and mark-to-market valuations.
- Potential reduction in risk-taking by the Federal Reserve due to restrictions on purchasing long-term Treasury bills and mortgage-backed securities.
- Enhanced public understanding of the Federal Reserve's impact on the economy.
- May lead to more prudent monetary policy decisions due to increased scrutiny.
Most Benefited Areas:
Potential Disadvantages
- Reduced flexibility for the Federal Reserve to respond to economic crises by limiting asset purchase options.
- Potential negative impact on market liquidity and stability due to restrictions on Treasury bill purchases.
- Increased compliance costs for the Federal Reserve due to additional reporting requirements and accounting standards.
- Possible constraints on the Federal Reserve's ability to support specific sectors of the economy, such as the housing market.
- The new restrictions may hinder the Federal Reserve's ability to manage inflation and promote full employment effectively.
Constitutional Alignment
The bill's focus on regulating the Federal Reserve's activities aligns with Congress's power to oversee and regulate the nation's financial system, as implied by Article I, Section 8 of the Constitution, which grants Congress the power to coin money and regulate its value. The requirement for additional reports to Congress also supports the principle of congressional oversight.
However, some might argue that limiting the Federal Reserve's flexibility could impinge on its ability to effectively manage monetary policy, potentially conflicting with the implied powers necessary to maintain economic stability. The balance between congressional oversight and the Federal Reserve's independence is a key consideration.
Overall, the bill appears to be within the constitutional bounds of congressional authority, but its practical effects on the Federal Reserve's operations and the economy would need careful monitoring.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).