[Congressional Record Volume 159, Number 16 (Monday, February 4, 2013)]
[Senate]
[Pages S471-S472]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CORKER (for himself and Mr. Vitter):
  S. 215. A bill to ensure that the Federal Reserve conducts its 
policies to ensure long-term price stability and a low rate of 
inflation; to the Committee on Banking, Housing, and Urban Affairs.
  Mr. CORKER. Mr. President, I am here today to introduce the Federal 
Reserve Mandate Act of 2013 in an effort to begin returning our country 
to the right place in monetary policy. Senator Vitter is joining me in 
this effort.

[[Page S472]]

  The objective of our bill is simple. Our Central Bank, like other 
Central Banks around the world, should be focused on creating an 
environment of price stability. This should be the guiding principle of 
monetary policy decisions.
  This is neither a radical nor a new idea. Most economists argue that 
the proper role of the Central Bank is to serve as a lender of last 
resort in a time of crisis, to supply payment distribution and clearing 
mechanisms, and to manage the money supply so that inflation stays in 
check. Managing unemployment is a completely separate task and not 
appropriate for the blunt tools of monetary policy. That is why almost 
every developed country's Central Bank has as its mandate the 
maintenance of price stability. In other words, we are an outlier.
  This is not to say that a focus on price stability means the Fed is 
abandoning unemployment. In fact, just the opposite is true. Monetary 
policy can and should create an environment where jobs can grow and 
thrive by giving the economy certainty that prices will remain stable 
over the long term.
  We have strayed a long way from traditional Central Bank actions. We 
have lost sight of the proper role of monetary policy in our economy. 
With roughly $3 trillion in assets--and I think the Presiding Officer 
knows that by the end of this year it is projected we will have $4 
trillion in assets--sitting on the Fed's balance sheet, there is no 
question that the Fed is distorting financial markets with multiple 
rounds of quantitative easing. At a minimum, we have completely lost 
price signals from instruments such as treasuries and mortgage-backed 
securities. It is likely, however, we are doing more damage than just 
that. We may be creating asset bubbles elsewhere as money moves into 
investments that are risky.
  We are also punishing savers. Purchasing assets to drive down rates 
forces pension funds and retirees to shift money into asset classes 
that may not be best for them. We are creating ``Fed addicts'' in our 
markets. Equity markets go through cycles where they become almost Fed 
obsessed. In these environments, good news is bad for equity markets 
because it means less QE buying. Meanwhile, bad economic news is good 
for markets because it means more easy money is on the way. Now we risk 
the perils of unwinding this policy.
  Economists are beginning to discuss the likelihood that the Fed will 
take significant losses on assets it has purchased. We just had one of 
the Fed Governors in our office last week sharing with us that as we 
begin unwinding these balance sheets, it is very likely, as the 
Presiding Officer can imagine, as interest rates go up and the Fed 
begins to buy these securities, we are going to lose money on those 
assets. So it is likely the Fed is going to take significant losses on 
the assets it purchased. Since the Fed is buying these bonds at record 
low yields, they will likely sell them down the road at higher yields. 
I don't think there is anybody right now who disagrees with that 
probability.
  The effect of this is a permanent increase in monetary supplies. This 
is an incredibly perverse situation we have now locked ourselves into.
  The employment mandate at the Fed has not always existed. A lot of 
people believe it has. It was added with the passage of the Humphrey-
Hawkins Act in 1978. Humphrey-Hawkins was passed in a moment of self-
congratulations, like a lot of things around here are passed. Congress 
patted itself on the back for ``ending unemployment.'' Obviously, 
nothing could be further from the truth. The Fed cannot end 
unemployment by printing money.
  The Central Bank should be tasked with maintaining price stability. 
We must return to this core principle. This is the reason we are 
offering this piece of legislation today.
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