Just a day before Janet Yellen took her seat in front of the senate Banking Committee for more than two hours of questioning, the IGM Panel of Economic Experts took up the question of whether or not Congress should adopt a House Republican proposal to give itself greater oversight of the Federal Reserve through the passage of a "Directive Policy Rule."
Ranked by stated confidence, 90% of the panelists want Congress to back off.
Were the proposal to become law, the Fed would have to submit to Congress a series of rules that would govern its behaviors—including setting the Federal Funds rate—in the event of changing economic inputs like inflation, Gross Domestic Product, or unemployment. The Fed would be free to deviate from its rules, but the Chair would have to go before Congress to explain why. Proponents (and there are none among the IGM panel) believe that rules-based policy-making will deliver better results than leaving total discretion in the hands of the Fed's governors.
The IGM panel sees the proposal as an assault on Fed autonomy by an institution of government that has earned little confidence. David Autor of MIT remarked: "Imagine if Congress had been running the Fed during the Financial Crisis—certain disaster!" Nancy Stokey of the University of Chicago warned, "Look at Argentina as an example of where political oversight leads."
Most accepting of the proposal was Robert Shimer, who marked himself uncertain, though also unwilling to apply this rule to Yellen. "Under future leadership, accountability might be justifiable," he said. Daron Acemoglu of MIT allows that the Fed needs oversight but "Congress may not be the right body to do it." (Congressional incompetence and also revisions to data were cited by many opponents.)
"Not a hard call," said Richard Schmalensee of MIT, summing things up nicely.