Photographer: Andrew Harrer/Bloomberg

Trump Team Broadly Backs Efforts to Rein In Fed, Hensarling Says

  • “We share many of the same goals,” key Texas lawmaker says
  • Hensarling wants Fed to adopt a monetary policy rule

The incoming Trump administration is broadly supportive of congressional-led efforts to restrict the Federal Reserve’s ability to conduct monetary policy, a key lawmaker said.

"We share many of the same goals," House Financial Services Committee Chairman Jeb Hensarling said in a brief interview Wednesday. "But precisely the way the administration might want to go legislatively, detailed conversations have yet to take place."

Jeb Hensarling

Jeb Hensarling

Photographer: Michael Nagle/Bloomberg

The Texas Republican was among those who led the charge in passage of the Fed Oversight Reform and Modernization Act by the House of Representatives last year. The legislation, which was not taken up by the Senate, would require the Fed to adopt a rule of its own choosing to guide monetary policy and would give Congress’s Government Accountability Office greater oversight of the central bank’s actions.

Hensarling, who worked closely with Vice President Mike Pence when the latter was a lawmaker, has repeatedly attacked the Fed for overstepping its bounds and for pursuing a discretionary monetary policy that he says hurts the economy by spawning uncertainty about the central bank’s intentions. He’s said his aim is to make the Fed more predictable, transparent and accountable.

Fed Chair Janet Yellen has opposed Republican-led efforts to limit the Fed’s ability to carry out monetary policy, arguing that it would end up harming, not helping, the economy. She’s also criticized the proposals as an assault on the Fed’s independence.

‘Ugly Bubble’

President-elect Donald Trump slammed the Fed and Yellen during the campaign for being overly political and for pursuing policies that favored outgoing President Barack Obama. Trump also accused the central bank of fomenting a “big, fat, ugly bubble” in the stock market with its low interest rates.

"The opportunity for monetary reform is now better than it has been for years," Stanford University professor John Taylor, who supports congressional efforts to rein in the Fed, said in testimony to a House Financial Services subcommittee Wednesday.

Taylor, who is best known for development of a simple rule to guide interest rate policy, said in an interview Tuesday that he had spoken to members of the president-elect’s transition team and found them sympathetic to a variety of reforms, including on the monetary front.

While candidate Trump did not speak specifically about the need for a more predictable and transparent Fed, his comments during the campaign indicated he is not comfortable with the status quo at the central bank, Taylor added.

Two Vacancies

With two slots vacant on the Fed’s seven-seat board, Trump will have an opportunity to nominate monetary policy makers more to his liking when he takes over as president in January. He’ll also have a chance to pick a new chairman and vice chairman in 2018, when Yellen’s term and that of her deputy, Stanley Fischer, expire.

Taylor, who was Treasury undersecretary for international affairs during the George W. Bush administration, has been mentioned as a potential candidate to replace Yellen when her term ends on Feb. 3, 2018.

Asked about that in a Nov. 29 Bloomberg Television interview, Taylor replied, "I’ve always been interested in public policy and service, one of the reasons I’m an economist. But I have to answer, the most important thing is to get a policy that works."

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