S.1648 - Right-size the Federal Reserve Act (119th Congress)
Summary
S.1648, the "Right-size the Federal Reserve Act," aims to limit the total assets of Federal Reserve banks and modify certain operational aspects. The bill introduces limitations on the aggregate assets of all Federal Reserve banks, capping them at 10% of the United States' gross domestic product (GDP), effective 10 years after enactment. It also mandates the elimination of the Overnight Reserve Repurchase Facility within one year of enactment and prohibits the creation of similar facilities.
Additionally, the bill requires annual reports to Congress detailing interest payments made to foreign-owned banks and financial institutions, and adjusts reserve requirements for banks. These changes are intended to reduce the Federal Reserve's influence on the economy and increase transparency.
The bill also includes a provision to maintain reserve requirements at levels no lower than those in effect on March 25, 2020.
Expected Effects
The primary effect of this bill would be to constrain the Federal Reserve's ability to respond to economic crises by limiting its asset holdings. This could lead to reduced liquidity in financial markets during downturns.
The elimination of the Overnight Reserve Repurchase Facility could affect short-term interest rate control. Increased reporting requirements would provide more transparency regarding the Fed's interactions with foreign entities.
Potential Benefits
- Could potentially reduce the risk of inflation by limiting the Fed's ability to expand the money supply.
- May encourage fiscal responsibility by preventing the Fed from excessively monetizing government debt.
- Increased transparency regarding payments to foreign-owned banks could enhance public trust.
- Could lead to a more stable financial system by reducing the Fed's influence.
- May encourage market discipline by reducing the perception of a Fed "put" or safety net.
Most Benefited Areas:
Potential Disadvantages
- Could hinder the Federal Reserve's ability to effectively manage economic crises and provide liquidity during financial shocks.
- The limitation on total assets may constrain economic growth by restricting the Fed's capacity to stimulate the economy during recessions.
- Eliminating the Overnight Reserve Repurchase Facility could destabilize short-term interest rates.
- The 10-year implementation timeline may create uncertainty in financial markets.
- Reduced flexibility for the Fed could lead to unintended consequences and exacerbate economic downturns.
Most Disadvantaged Areas:
Constitutional Alignment
The bill's focus on limiting the Federal Reserve's power aligns with broader constitutional principles related to checks and balances. Article I, Section 8 grants Congress the power to coin money and regulate its value, suggesting a role for Congress in overseeing monetary policy.
However, the degree to which Congress can or should interfere with the operational independence of the Federal Reserve is a matter of ongoing debate. The bill does not appear to infringe on any specific constitutional rights or liberties.
It is important to note that the Constitution does not explicitly address the structure or powers of a central bank, leaving considerable room for interpretation and legislative action.
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).