US Codex
Bill
Notes

Title I — Single Mandate for Price Stability Act

S. 238 · 113th Congress · Feb 7, 2013 · Lineage

I Single Mandate for Price Stability Act

Sec. 101 Findings

The Congress finds the following:
(1)
Monetary policy can only affect the level of employment in the short term because nonmonetary factors determine the level of employment in the long term. At best, the Federal Reserve may temporarily increase the level of employment through monetary policy, but such efforts risk the possibility of price inflation and increased business cycle volatility in the future. However, the Federal Reserve can achieve price stability in the long term through monetary policy. Price stability is desirable because both price inflation and price deflation damage the U.S. economy. Therefore, to maximize long-term economic growth and achieve the highest sustainable level of real output and employment, price stability should be the objective of monetary policy.
(2)
Countries whose central bank has a single mandate for price stability generally have a better record of achieving stable prices than countries whose central bank has a mandate that gives equal weight to other objectives such as maximum employment or low interest rates.
(3)
In general, an overly accommodative monetary policy inflates both asset prices and prices for goods and services. However, an overly accommodative monetary policy may sometimes cause a misallocation of capital that inflates asset prices disproportionately, creating unsustainable bubbles in asset prices, while price indices for goods and services do not register significant price inflation. When asset bubbles burst, many investments must be liquidated at considerable cost to the U.S. economy in terms of lower real output and employment.
(4)
Price stability cannot always be measured solely through price indices for goods and services since such indices exclude changes in asset prices. Therefore, the Federal Reserve should monitor (A) the prices of, and the expected returns from, major asset classes (including equities, residential real estate, commercial and industrial real estate, agricultural real estate, gold and other commodities, corporate bonds, U.S. Government bonds, State and local government bonds, and other securities), (B) the value of the U.S. dollar relative to other currencies, and (C) the value of the United States dollar relative to gold, as metrics to determine whether the Federal Reserve’s monetary policy is consistent with long-term price stability.

Sec. 102 Price stability mandate

(a)
In general— Section 2A of the Federal Reserve Act (12 U.S.C. 225a) is amended—
(1)
by striking “goals of maximum employment, stable prices, and moderate long-term interest rates” and inserting “goal of long-term price stability”;
(2)
by striking “The Board of Governors” and inserting the following:

“(a) In general—The Board of Governors”

(3)
by adding at the end the following:

“(b) Price stability metrics

“(1) In general—The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall—

“(A) define the term “long-term price stability” for purposes of subsection (a); and

“(B) establish metrics that the Board and the Committee will use to evaluate whether long-term price stability is being achieved.

“(2) Establishment of metrics—In establishing the metrics described under paragraph (1)(B), the Board and Committee shall—

“(A) take into consideration price indices of goods and services; and

“(B) evaluate, on an ongoing basis—

“(i) whether such metrics are comprehensively reflecting price movements in the economy; and

“(ii) whether any price movements not captured by the price indices of goods and services are causing a significant misallocation of capital in the United States economy.

“(3) Metric evaluation—The Board and Committee shall, with respect to the evaluation process required pursuant to paragraph (2)(B), monitor—

“(A) the prices of, and the expected returns from, major asset classes (including equities, residential real estate, commercial and industrial real estate, agricultural real estate, commodities, corporate bonds, State and local government bonds, and other securities) and the allocation of capital in financial markets and the broader economy;

“(B) the value of the United States dollar relative to other currencies; and

“(C) the value of the United States dollar relative to gold.

“(4) Public disclosure; Report to the Congress—The Board and the Committee shall, with respect to the definition of long-term price stability and the establishment of metrics set pursuant to paragraph (1)—

“(A) make such definition and metrics available to the public on a website maintained by the Board or the Committee; and

“(B) each time such definition and metrics are set or revised, issue a report to the Congress stating such definition and metrics.”

(b)
Additional evaluations and determinations included in semi-Annual report to Congress— Section 2B(b) of the Federal Reserve Act (12 U.S.C. 225b(b)) is amended—
(1)
by striking “containing a discussion” and inserting the following:

“(1) a discussion”

(2)
by striking the period and inserting a semicolon; and
(3)
by adding at the end the following:

“(2) the results of the evaluation process conducted pursuant to section 2A(b)(2)(B);

“(3) a determination of whether the goal of long-term price stability is being met and, if such goal is not being met, an explanation of why the goal is not being met and the steps that the Board and the Federal Open Market Committee will take to ensure that the goal is met in the future;

“(4) a description of the main monetary policy instruments used by the Board and the Federal Open Market Committee and a description of the strategy of the Board and the Committee with respect to using such instruments to achieve the goal of long-term price stability; and”