Federal Reserve Chair Janet Yellen on Tuesday
condemned a proposal in the U.S. Congress that would require the
central bank to tie interest rate policy to a mathematical rule,
arguing this would "severely damage the U.S. economy."
Under the type of policy rule envisioned by lawmakers, the
Fed would commit to moving interest rates up or down depending
on the readings of economic indicators like the jobless rate and
In a letter to lawmakers, Yellen said the proposed law,
which could see a vote in the House of Representatives after
Wednesday, would hamstring the Fed's ability to respond to
crises and would also be an intrusion on its independence.
This would "likely lead to an increase in inflation fears
and market interest rates, a diminished status of the dollar in
global financial markets, and reduced economic and financial
stability," she said.
She argued that policymakers don't understand the economy
well enough to come up with a rule that would reliably guide the
economy through its ups and downs.
"There is no consensus among economists or policymakers
about a simple policy rule that is best suited to cover a wide
range of scenarios," Yellen said.
Some congressional Republicans have pressed for the Fed to
adopt rules and justify to Congress in a policy "audit" any
cases where rate decisions deviate from that rule.
The proposals, including the one under consideration this
week, are not expected to become law, but have nonetheless
prompted a host of Fed policymakers to air their concerns in
In her letter addressed to Republican Paul Ryan, who
recently became House Speaker, and the Democratic Leader in the
House, Nancy Pelosi, Yellen said the Fed Oversight Reform and
Modernization Act "would politicize monetary policy and bring
short-term political pressures into the deliberations of the"