- `Fed generally interprets the law to their advantage,' he says
- Senate Banking Committee chief says counsel to review issue
Senate Banking Committee Chairman Richard Shelby said he doubts the Federal Reserve has the authority to cut interest rates below zero and indicated his counsel will review the legality of the tool as the central bank weighs its policy options.
“The Fed generally interprets the law to their advantage,” Shelby, a Republican from Alabama, said in an interview Thursday in Washington. “We will have our counsel look into it. That’s the question. I would doubt it, but I haven’t personally checked it,” he said when asked if the authority exists under current law.
Congress gave the Fed authority in 2008 to pay interest on excess reserves, or IOER. While the tool helps the Fed raise its benchmark interest rate and simultaneously maintain a $4.5 trillion balance sheet that policy makers say supports the economy, several lawmakers have complained to Yellen in recent days that IOER is enriching Wall Street.
In her second day of congressional testimony, Yellen defended the tool, noting that the flip side of the excess reserves are the Fed’s large asset holdings, which generated many more billions of dollars in remittances to the Treasury.