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Federal Reserve Chair, Janet Yellen warned against a bill, which is being considered on the floor of House of Representatives, known as FED oversight bill. According to her, the bill if becomes law would severely damage US economy. In a letter to House speaker Paul Ryan and democratic leader Nancy Pelosi, Janet Yellen said the bill could severely impair FED's ability to pursue dual mandate.
The bill includes rules that will require FED to act (hike or cut) according to established Mathematical formula such as Taylor rule and Government accountability office would be responsible for over sighting if FED has met the criteria.
The bill, which was introduced in the house in July is scheduled for a vote this week.
If the rule, do becomes the law, it will totally change, how FED responses during crisis and boom, impacting global financial market as a whole.
According to Ms. Yellen, such an approach will lead to poor economic outcomes and severely undermine FED's independence and make it more susceptible to political pressure.
Many senators, both in republican and democrat camp is not very pleased with FED's response to 2008/09 crisis.
However, the bill even if passes through the house, likely to face challenges in democrat controlled senate, while President Obama can veto it down if it reaches White House.
