(Adds vote count, background)
By Michael Flaherty
WASHINGTON, July 30 The U.S. House of
Representatives Financial Services Committee narrowly approved a
bill on Wednesday that would require the Federal Reserve to set
a specific rule to follow when implementing monetary policy.
The bill, which is opposed by the U.S. central bank, passed
the panel on a 32-26 vote, clearing it for possible
consideration by the full House.
The prospects it will become law this year are slim. Even if
it were approved by the Republican-led House, there is no sign
the Democrat-controlled Senate would take it up.
Nevertheless, it serves as a marker in an ongoing political
debate over the Fed's role. Some lawmakers are uncomfortable
with the extraordinary steps the central bank took to battle the
2007-2009 financial crisis and recession.
While Democrats argued the bill was an assault on the Fed's
political independence, a group of Republican lawmakers in the
House are intent on placing more scrutiny on the central bank.
In addition to requiring the Fed to follow a rule in making
its interest rate decision, the bill would force it to disclose
the salaries of its highest-paid staff and conduct cost-based
analyses before enacting any regulation.
It would also require quarterly testimony from the central
bank's chair, who currently presents a monetary policy report to
Congress just twice a year.
The most controversial part of the legislation, however, is
the requirement for the Fed to generate a monetary policy rule.
It would be required to justify the rule if it deviated from the
so-called "Taylor Rule" that produces an interest rate
recommendation based on changes in inflation and GDP growth.
Whenever the Fed amended its rule, its decision would be
subject to a congressional audit.
Fed Chair Janet Yellen has said the adoption of any firm,
monetary policy rule would be a "grave mistake," citing the need
for discretion and flexibility. A poll of academic economists by
the University of Chicago found a strong majority opposed to the
legislation, with many respondents arguing the bill threatened
to erode the Fed's independence.
(Reporting by Michael Flaherty; Editing by James Dalgleish and