The U.S. House of Representatives plans a broad review of the Federal Reserve's interest rate decisions to assess whether inflation should take precedence over employment

The U.S. House working group plans a broad review of the Federal Reserve's series of interest rate decisions, assessing whether inflation responsibilities should take precedence over employment responsibilities.

According to Reuters, the head of the Federal Reserve oversight working group in the new U.S. Congress is preparing to strengthen oversight of the Federal Reserve, planning a comprehensive review of how the Fed makes interest rate decisions, including whether controlling inflation should be prioritized over ensuring employment.

Oklahoma Republican Congressman Frank Lucas stated in a media interview, "Many of my colleagues on the Financial Services Committee and the chairman want to discuss this issue. Is there really a dual mandate? How does this affect the primary mandate of price stability?"

A new congressional special working group focused on the Federal Reserve plans to hold its first public hearing in early March. Lucas's interview took place on the eve of this first hearing. It is noteworthy that this working group was initiated by individuals critical of the Fed's approach to setting monetary policy.

According to the U.S. House Financial Services Committee website, the "Monetary Policy, Treasury Market Resilience, and Economic Prosperity Task Force" will hold its first hearing on March 4 at 10 a.m. Eastern Time, with the theme "Examining Monetary Policy and Economic Opportunities." No further details, including witnesses, have been provided yet.

The Federal Reserve's dual mandate—promoting price stability and maximizing employment—was established by the U.S. Congress in 1978, and both objectives are currently close to being achieved: the U.S. unemployment rate is around 4%, and the inflation rate has dropped to about 2.6%, which is much better than many had feared compared to the 2% target.

After the COVID-19 pandemic, the U.S. experienced soaring prices, with inflation reaching a 40-year high, prompting the Federal Reserve to aggressively raise interest rates to curb inflation. This once-in-a-generation inflation has left scars on policymakers, market participants, and the average American.

Lucas, who has thirty years of congressional experience, is keen to explore whether there are flaws in the Fed's approach. In a series of hearings over the coming months, he will also examine long-standing issues, such as whether the Fed should rely more on monetary policy rules in its decision-making. This may not mean the Fed completely excludes its discretion, but rather aims to provide the public with more certainty about the central bank's policy direction.

Lucas stated, "If you are primarily focused on price stability, if you want economic forces to make decisions, then placing more emphasis on a rules-based process can provide that certainty."

Lucas acknowledged that due to the very slim Republican majority in both the House and Senate, and the fact that the dual mandate has been in place for nearly 50 years, amending the Federal Reserve Act would be challenging. However, he anticipates that this process could ultimately lead to advisory legislation, a series of reports, or recommendations to the Federal Reserve.

Lucas believes that the current timing is very appropriate, as the Federal Reserve is currently conducting an internal review of an operational framework that significantly increased its focus on unemployment issues in 2020. Some believe this delayed the Fed's response to the price pressures that began to emerge in 2021. Lucas stated, "These issues are very important right now." In addition to monetary policy, a congressional panel in the United States will also examine issues related to the functioning of the U.S. Treasury bond market