Time To Amend and Update USA Federal Reserve Act and the Federal Open Market Committee (FOMC)

 November 9, 2024

It was under President Barack Obama in 2012, that the Fed through FOMC formally stated its 2% inflation target as a clear goal for price stability.

Federal Reserve Act does not specifically mandate a 2% inflation rate, the FOMC independently set this 2% inflation target as part of its monetary policy to achieve price stability, which is one of the components of its dual mandate.

The Federal Open Market Committee (FOMC) is a part of the Federal Reserve System, and its activities are ultimately accountable to Congress. Thus, congress did not adhere to the non-delegation doctrine that prevents it from delegating its legislative powers to other branches of government or to administrative agencies. This doctrine is rooted in the separation of powers, which is a core principle in the Constitution.

Congress: Can pass laws to implement the policy for the Federal Reserve and Federal Open Market Committee (FOMC). It does NOT have the legal authority to delegate its legislative powers to the FOMC or The Federal Reserve as per the nondelegation doctrine, in my view.

Oversight: Congress has the authority to amend the Federal Reserve Act, which defines the role and powers of the Federal Reserve, including the FOMC. Therefore, Congress has oversight over the FOMC but cannot directly intervene in its day-to-day operations.

Accountability: The FOMC, like the Federal Reserve System, operates independently within the framework established by Congress. It reports to Congress regularly, especially in terms of its policy decisions and economic outlook.

Annual Reports: The Chair of the Federal Reserve (who also chairs the FOMC) is required to testify before Congress twice a year (typically before the House Financial Services Committee and the Senate Banking, Housing, and Urban Affairs Committee) to provide updates on monetary policy and answer questions from lawmakers.

The President: The FOMC also submits an Annual Report, and the President of the United States appoints the members of the Board of Governors of the Federal Reserve, including the Chairperson and Vice Chairperson.

The FOMC: Is composed of seven members of the Board of Governors and five regional Federal Reserve Bank presidents. While the President can influence the selection of Board members, once appointed, Board members (including the FOMC members) have a 14-year term, which is designed to insulate them from short-term political pressures. The Chairperson serves a 4-year term but can be reappointed.

Federal Reserve's policies: Particularly in terms of keeping interest rates high and aiming for 2% inflation—generates significant revenue for the Federal Reserve itself, which is sometimes returned to the U.S. Treasury. However, there are multiple factors and consequences to consider in this scenario, as the relationship between monetary policy, the Federal Reserve’s earnings, and its effects on taxpayers (both individuals and corporations) is complex.

Breakdown of how this works:

1. Revenue Generation from High Interest Rates:

• Interest on Government Securities: The Federal Reserve generates revenue from the interest it earns on the U.S. Treasury bonds and other government securities it holds. When the Federal Reserve raises interest rates, the government must pay higher interest on its debt, which increases the interest income that the Fed receives from these securities.
• Increased Earnings: As interest rates rise, the Federal Reserve's income from interest payments increases, which leads to higher profits for the Federal Reserve. Some of this profit is then transferred back to the U.S. Treasury. In that sense, the higher interest rates increase revenue for the government (in the form of Fed transfers), but it also means that the cost of servicing government debt is more expensive for taxpayers.

2. Inflation Targeting and Its Impact:

• Inflation Control: The Federal Reserve’s goal of maintaining 2% inflation is part of its dual mandate to promote price stability and maximum employment. By targeting a low and stable inflation rate, or preferably a ZERO inflation rate, the Fed aims to prevent the negative economic effects of both high inflation and deflation, which can harm the economy.
• Corporate Impact: While a 2% inflation policy might stabilize the economy, it may have short-term and long-term negative effects for individuals and corporations. High interest rates, for example, increase the cost of borrowing for businesses, consumers, and even the government, which slows down economic growth and hurts business profitability.
• Higher Corporate Taxes: If businesses face higher interest costs, this reduces their profits, potentially affecting corporate tax revenues. On the flip side, if the Federal Reserve's actions might help maintain a stable economy, it might encourage long-term investment and growth.

3. Impact on Taxpayers:

• Individual Taxpayers: High interest rates make consumer loans, mortgages, and credit cards more expensive for individuals, which means they may have less disposable income. This affects their spending behaviour and overall economic activity, conceivably leading to reduced tax revenues from consumer spending and income.
• Government Debt: The government also faces higher borrowing costs when interest rates rise. The U.S. Treasury must pay more to service the national debt, which increases the tax burden on future generations due to higher interest payments. So, even though the Fed may make higher profits, the public debt grows, and taxpayers ultimately pay the price through increased government spending on interest.

4. Corporate Taxpayers and Borrowing Costs:

• Corporations that rely on debt financing face higher costs when interest rates are high. As borrowing becomes more expensive, companies might reduce investment or pass these costs onto consumers, which could have a ripple effect on the broader economy. This could impact corporate profits and tax revenues.
• Corporate Profitability: High interest rates also reduce corporate profitability in the short term, which leads to lower corporate tax revenues as businesses face higher borrowing costs and may delay expansion or hiring.

5. The Fed's Role in Economic Stability:

• Despite these impacts, the Federal Reserve’s primary role is to ensure economic stability, even if that comes with short-term costs. Zero inflation and low interest rates help fuel growth, but controlling inflation and managing interest rates politically are seen as tools to prevent runaway inflation or economic collapse.
• While higher interest rates generate more revenue for the Fed, the long-term goal is to keep the economy healthy and stable. Without a predictable and controlled economic environment, the risks of volatility, financial crises, and economic downturns become much higher.

Conclusion:

1.      Congress should pass laws to implement the policy proposals for a Zero Inflation Target: Maintaining a stable price level ensures that the purchasing power of money remains constant over time. Money Supply Growth Cap: Limiting money supply growth to 2% above zero inflation provides liquidity without inducing inflation. Interest Rate Cap: Capping interest rates at a maximum of 4% keeps borrowing costs affordable and predictable.

2.      Congress must amend the Federal Reserve Act to reduce the term of FOMC members from the current 14-year term to a 4-year term with the possibility of renewal for a further 4 years only. Maximum term of 8 years in total.

3. Federal Reserve members (including the Board of Governors and FOMC members) and other employees are paid by taxpayer funds as the Federal Reserve is a public institution.

4. The Federal Reserve's policies—particularly in terms of keeping interest rates high and aiming for 2% inflation—generate significant revenue for the Federal Reserve itself.

5. High interest rates and a 2% inflation target result in higher revenue for the Federal Reserve, as it earns more interest on its securities holdings.

6. Fed's policies generate more revenue for itself and the Treasury, the trade-offs involve higher costs for ALL taxpayers due to the increased cost of borrowing and servicing national debt.

7. High interest rates with a 2% inflation target result in higher revenue for the Federal Reserve, as it earns more interest on its securities holdings. However, this comes at the expense of taxpayers, as higher interest payments on government debt and higher borrowing costs for individuals and businesses reduce disposable income and increase the national debt.

Where the Democratic Party Strategy Missed the Mark

 November 6, 2024

One key issue is the disconnect between political ideologies for long-term policy intentions and immediate voter realities. 

From a political perspective, the Democratic Party, as per the popular vote by a majority of voters, underestimated the psychological impact of inflation.

Even as economic metrics showed improvement in job creation and GDP growth, voters, mothers, fathers, white or black, remain Americans and care more about their shrinking purchasing power. 

If politicians had addressed this emotional, monetary and economic reality with more urgency, focusing on immediate financial relief, they could have resonated better with everyday concerns.

Perception is as critical as the economic fundamentals in politics, a fact, the Democratic party failed to comprehend, in my view.

The Democrats' misreading of economic pain exemplifies the importance of addressing inflation with measures that offer swift, tangible benefits. Future strategies must balance long-term goals with immediate cost-of-living alleviation.

The 2024 election results underscored a voter base frustrated by economic hardship, with inflation remaining a decisive issue. This article explores how the Democratic Party underestimated inflation’s universal impact, failing to address everyday financial burdens faced by citizens across income levels.

Key Points

1. Inflation's Impact on Everyone Inflation affects the cost of living—groceries, housing, car insurance, interest rates, heating, transportation etc.—impacting everyone be they wealthy, middle class or economically vulnerable. Despite economic improvements in other areas, inflation erodes real wages, leaving people poorer even when the broader economy seems to grow.
2. The Inflation Reduction Act’s Misalignment The Inflation Reduction Act (IRA) was a “misnomer” as it did not provide immediate relief. Its long-term investments in green energy, healthcare, and corporate taxes did not alleviate current pressures like rent and grocery bills, leaving citizens feeling the Act accelerated rather than curbed inflation.
3. Disconnect in Communication and Policy Focus Democrats emphasized climate and healthcare provisions, but the majority of voters prioritized immediate financial relief. Messaging around economic gains, like unemployment rates and job growth, often fell flat when inflation dominated household concerns.
4. Voter Sentiment and Election Outcomes Data from sources like Pew Research indicate that economic worries were top of mind. The majority of voters believed the Democratic Party misjudged the severity of inflation and ignored its impact on daily life, resulting in skepticism and distrust.

Victoria Woodhull: The First Woman to Run for President of the United States

In 1872, that is 144 years before Hillary Clinton’s run for US President, Victoria Woodhull was the first woman to run for President of the United States and Woodhull remains a significant milestone in the history of American women’s politics. Her life story, marked by perseverance and advocacy, continues to inspire generations of women to challenge societal norms and pursue their aspirations. Woodhull’s contributions to women’s rights and her groundbreaking presidential candidacy paved the way for future female leaders in the political arena to continue the effort to break the highest, hardest glass ceiling in politics.

Victoria Woodhull, born on September 23, 1838, in Homer, Ohio, emerged from a life of poverty and adversity to become a trailblazer in American politics. Her journey from a tumultuous childhood to the forefront of the women’s rights movement is a testament to her resilience and pioneering spirit. Woodhull’s candidacy in the 1872 presidential election marked a significant milestone in the fight for gender equality in the United States.

Early Life and Struggles

Victoria Woodhull was one of ten children in a family plagued by hardship. Her mother was illiterate, and her father was a criminal. Despite these challenging beginnings, Woodhull displayed an early determination to overcome her circumstances. She began elementary school at the age of eight but dropped out three years later. At the age of fifteen, she married Dr. Canning Woodhull, an alcoholic, which forced her to support her family through various jobs, including working as a clerk, seamstress, actress, and spiritual medium.

Advocacy for Free Love and Women’s Rights

The onset of the Civil War marked a pivotal point in Woodhull’s life. She divorced her husband but retained his surname, reflecting her growing independence. The divorce led her to become involved in the Free Love movement, which sought to make it easier for women to leave abusive marriages and argued that issues like divorce and birth control were personal matters, not state concerns. Woodhull famously proclaimed, “Let women issue a declaration of independence sexually, and absolutely refuse to cohabit with men until they are acknowledged as equals in everything, and the victory would be won in a single week.”

Rise to Prominence

During the Civil War, Woodhull worked as a healer alongside her sister Tennessee. Through this work, she met Colonel James Blood, whom she married after the war, and Cornelius Vanderbilt, a wealthy railroad tycoon. These connections proved crucial for Woodhull’s future endeavours. In 1868, she and her sister moved to New York City, where they continued working as clairvoyants for Vanderbilt. The sisters amassed significant wealth from stock tips provided by Vanderbilt, enabling them to open Woodhull, Claflin & Co. in 1870, becoming the first female stockbrokers on Wall Street.

Political and Social Advocacy

Woodhull utilized her newfound platform to advocate for women’s rights, labourers, and the poor. She founded Woodhull and Claflin’s Weekly, a newspaper promoting Free Love, women’s suffrage, and political reform. This publication served as a critical vehicle for Woodhull’s progressive ideas and her political aspirations.

Presidential Candidacy

In 1872, Victoria Woodhull made history by becoming the first woman to run for President of the United States. Running on the Equal Rights Party ticket, she championed a progressive platform that included women’s suffrage, regulation of monopolies, nationalization of railroads, an eight-hour workday, direct taxation, abolition of the death penalty, and welfare for the poor. Frederick Douglass was selected as her running mate, although he never formally acknowledged the nomination. Despite her groundbreaking candidacy, Woodhull’s votes were minimal and went largely uncounted.

Decline and Legacy

After the election, Woodhull’s political career declined rapidly. Her personal life, often sensationalized in her newspaper, alienated key allies like Susan B. Anthony and Elizabeth Cady Stanton. Consequently, she was ostracized from the suffrage movement and received no further invitations to speak at conventions.

Disillusioned, Woodhull moved to England in 1877, where she married into a wealthy family and became a patron of the arts. Although she never saw her activism fully realized in the United States, she lived to witness the achievement of women’s suffrage in Great Britain. Victoria Woodhull passed away on June 9, 1927, at the age of 88.