Representative Barney Frank, the ranking member of the House Financial Services Committee, is working on legislation that would transform the Federal Reserve's decision-making process.
According to Bloomberg and The Hill, Frank plans to submit a bill that would remove the votes of the five regional Federal Reserve presidents from the 12-member Federal Open Markets Committee (FOMC), which sets interest rates, and replace them with five appointees that would be nominated by the president and confirmed by the Senate.
Frank is concerned that the process is undemocratic because the regional Fed presidents are not elected or appointed by elected representatives, and he believes that regional Fed presidents are overly likely to focus on guarding against inflation at the expense of more adequately tackling the country's unemployment crisis.
Traditionally, seven governors of the Federal Reserve are appointed to the FOMC in such a way, while the president of the Federal Reserve Bank of New York has a permanent seat on the committee, and four of the 11 presidents of the other regional banks have one-year rotating terms on the committee.
The new legislation will be a revision of legislation that Frank originally proposed in May.
Frank said in a statement on Monday that the current structure of the FOMC allows for a "self-perpetuating group of private citizens" to keep "skewing policy" at the Fed, according to The Hill.
Frank's committee analyzed the voting patterns of the FOMC in 2009 and found that 90 percent of the committee's dissenting votes were made by the five regional presidents. That public naysaying has hurt the Fed's ability to influence the economy, Frank said.
There has been a growing chorus of concern about the Federal Reserve's secrecy. Bloomberg News revealed last month that the Federal Reserve loaned $1.2 trillion of public money to banks in an effort to save the financial system and the economy with it: a move that could have made Wall Street complacent about receiving such loans in the future when the economy sours.
Some economists also have expressed concern that the Federal Reserve is not serious enough about fulfilling its mandate to maximize employment. One Fed official found that the Fed's purchases of more than $2 trillion in mortgages and U.S. debt may increase unemployment. New York Times columnist Paul Krugman has consistently lambasted the Fed's fear of further action because it could cause inflation. Krugman wrote in August that the Fed has been "intimidated into inaction." Berkeley Economics Professor Brad DeLong also has criticized the Fed's focus on inflation. "There is a requirement for price stability--and right now prices and demand are unstable downward," DeLong wrote, arguing for the Fed to be more concerned about deflation and unemployment.
Frank has called the issue "a matter of democratic principle," since the regional Fed presidents "are not elected and not appointed by people who are elected making important decisions."
"The Federal Reserve has a dual mandate for being concerned about unemployment and inflation," Frank told Fortune Magazine in May. "There is a tendency by members picked by regional business people to focus much more on inflation and not enough on unemployment. So the current structure biases the Federal Reserve away from one half of its duty. I want there to be equal attention to unemployment and inflation."
Dallas Fed President Richard Fisher, a FOMC member who has often warned about the dangers of inflation, said on Monday that the Federal Reserve would risk a public backlash and its independence if it allowed prices to rise to help the economy recover.
"There's a difference between theory and practice," said Fisher, a former money manager. "I think it is important to take into account the consequences."
CORRECTION: An earlier version of this story incorrectly stated that the Federal Reserve loaned banks $1.2 billion. The figure in fact is $1.2 trillion.