Five Questions for Congress
Patrick Horan and I have a new piece in US News and World Report. Here is an excerpt:
Here are the five questions that the Fed needs Congress to clarify:
First, what is the appropriate size of the Fed’s balance sheet? . . .
Second, should the Fed worry about capital losses in the price of its Treasury bond holdings (and possible bankruptcy)? Or should the Fed recognize that a decline in the value of its Treasury bonds is an equal gain for the Treasury, and hence a wash for the consolidated federal government balance sheet? . . .
Third, is negative interest on bank reserves (or “negative IOR”) legal in the United States? Should it be? . . .
Fourth, should the Fed set an inflation target high enough to entirely avoid the zero interest rate problem? If not, does Congress have a preference as to which monetary policy tools it uses when rates are near zero? . . .
Finally, how should fiscal and monetary policy work together? Does Congress want the Fed to “do whatever it takes” to hit its macro targets (such as 2 percent inflation), or would Congress prefer to assist the Fed with fiscal stimulus when more spending is needed?
Right now, the Fed does not know the correct answer to any of these questions. Nor does it know whether Congress has a soft preference for any particular options.
Yesterday I presented these ideas, as well as my proposal for Fed accountability, to Senate staffers on Capitol Hill.
PS. My plane down to DC on Tuesday was 5 hours late taking off. That did not happen again yesterday, instead my plane was 5 1/2 hours late. As an added bonus, I spent 3 1/2 hours sitting on the runway with my knees jammed into the seat in front of me, with no AC, before I was transferred to another plane, which was also late. On the second plane I was of course the very first person who was disallowed carry on luggage—I should have done Asian-style queuing and gotten ahead of that slow old lady. This is bad because it was late at night and Boston’s airport has notoriously slow baggage service. I finally got to my car at nearly midnight, at which point I ran into bumper to bumper traffic. Seems late at night is a good time to do tunnel repair, as there is no traffic—unless of course you do tunnel repair.
So right now I feel a bit covfefe; hopefully I’ll recover soon.
PPS. I’ll never be dragged off a plane, but soon they’ll have to drag me on.