Sec. 701. Requirements for policy rules of the Federal Open Market Committee
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The Federal Reserve Act ( 12 U.S.C. 221 et seq. ) is amended by inserting after section 2B the following new section: In this section the following definitions shall apply: The term appropriate congressional committees means the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate. The term Directive Policy Rule means a policy rule developed by the Federal Open Market Committee that meets the requirements of subsection
(c)and that provides the basis for the Open Market Operations Directive. The term GDP means the gross domestic product of the United States as computed and published by the Department of Commerce. The term Intermediate Policy Input — may include any variable determined by the Federal Open Market Committee as a necessary input to guide open-market operations; shall include an estimate of, and the method of calculation for, the current rate of inflation or current inflation expectations; and shall include, specifying whether the variable or estimate is historical, current, or a forecast and the method of calculation, at least one of— an estimate of real GDP, nominal GDP, or potential GDP; an estimate of the monetary aggregate compiled by the Board of Governors of the Federal Reserve System and Federal reserve banks; or an interactive variable or a net estimate composed of the estimates described in clauses
(i)and (ii). The term legislative day means a day on which either House of Congress is in session. The term Open Market Operations Directive means an order to achieve a specified Policy Instrument Target provided to the Federal Reserve Bank of New York by the Federal Open Market Committee pursuant to powers authorized under section 14 of this Act that guide open-market operations. The term Policy Instrument means— the nominal Federal funds rate; the nominal rate of interest paid on nonborrowed reserves; or the discount window primary credit interest rate most recently published on the Federal Reserve Statistical Release on selected interest rates (daily or weekly), commonly referred to as the H.15 release. The term Policy Instrument Target means the target for the Policy Instrument specified in the Open Market Operations Directive. The term Reference Policy Rule means a calculation of the nominal Federal funds rate as equal to the sum of the following: The rate of inflation over the previous four quarters. One-half of the percentage deviation of the real GDP from an estimate of potential GDP. One-half of the difference between the rate of inflation over the previous four quarters and two percent. Two percent. Not later than 48 hours after the end of a meeting of the Federal Open Market Committee, the Chairman of the Federal Open Market Committee shall submit to the appropriate congressional committees and the Comptroller General of the United States a Directive Policy Rule and a statement that identifies the members of the Federal Open Market Committee who voted in favor of the Rule. A Directive Policy Rule shall— identify the Policy Instrument the Directive Policy Rule is designed to target; describe the strategy or rule of the Federal Open Market Committee for the systematic quantitative adjustment of the Policy Instrument Target to respond to a change in the Intermediate Policy Inputs; include a function that comprehensively models the interactive relationship between the Intermediate Policy Inputs; include the coefficients of the Directive Policy Rule that generate the current Policy Instrument Target and a range of predicted future values for the Policy Instrument Target if changes occur in any Intermediate Policy Input; describe the procedure for adjusting the supply of bank reserves to achieve the Policy Instrument Target; include a statement as to whether the Directive Policy Rule substantially conforms to the Reference Policy Rule and, if applicable— an explanation of the extent to which it departs from the Reference Policy Rule; a detailed justification for that departure; and a description of the circumstances under which the Directive Policy Rule may be amended in the future; include a certification that such Rule is expected to support the economy in achieving stable prices and maximum natural employment over the long term; include a calculation that describes with mathematical precision the expected annual inflation rate over a 5-year period; and include a plan to use the most accurate data, subject to all historical revisions, for inputs into the Directive Policy Rule and the Reference Policy Rule. The Comptroller General of the United States shall compare the Directive Policy Rule submitted under subsection
(b)with the rule that was most recently submitted to determine whether the Directive Policy Rule has materially changed. If the Directive Policy Rule has materially changed, the Comptroller General shall, not later than 7 days after each meeting of the Federal Open Market Committee, prepare and submit a compliance report to the appropriate congressional committees specifying whether the Directive Policy Rule submitted after that meeting and the Federal Open Market Committee are in compliance with this section. Nothing in this Act shall be construed to require that the plans with respect to the systematic quantitative adjustment of the Policy Instrument Target described under subsection (c)(2) be implemented if the Federal Open Market Committee determines that such plans cannot or should not be achieved due to changing market conditions. Upon determining that plans described in paragraph
(1)cannot or should not be achieved, the Federal Open Market Committee shall submit an explanation for that determination and an updated version of the Directive Policy Rule to the Comptroller General of the United States and the appropriate congressional committees not later than 48 hours after making the determination. The Comptroller General shall, not later than 48 hours after receiving such updated version, prepare and submit to the appropriate congressional committees a compliance report determining whether such updated version and the Federal Open Market Committee are in compliance with this section. If the Comptroller General of the United States determines that the Directive Policy Rule and the Federal Open Market Committee are not in compliance with this section in the report submitted pursuant to subsection (d), or that the updated version of the Directive Policy Rule and the Federal Open Market Committee are not in compliance with this section in the report submitted pursuant to subsection (e)(2), the Chairman of the Board of Governors of the Federal Reserve System shall, if requested by the chairman of either of the appropriate congressional committees, not later than 7 legislative days after such request, testify before such committee as to why the Directive Policy Rule, the updated version, or the Federal Open Market Committee is not in compliance. Notwithstanding subsection
(b)of section 714 of title 31, United States Code, upon submitting a report of noncompliance pursuant to subsection
(d)or subsection (e)(2) and after the period of 7 legislative days described in paragraph (1), the Comptroller General shall audit the conduct of monetary policy by the Board of Governors of the Federal Reserve System and the Federal Open Market Committee upon request of the appropriate congressional committee. Such committee may specify the parameters of such audit. The Chairman of the Board of Governors of the Federal Reserve System shall, if requested by the chairman of either of the appropriate congressional committees and not later than 7 legislative days after such request, appear before such committee to explain any change to the Directive Policy Rule. .
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Sec. 701
Requirements for policy rules of the Federal Open Market Committee
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