Senator drafting Federal Reserve overhaul

Sen. Richard Shelby (R-Ala.)

Sen. Richard Shelby (R-Ala.)

The Hill is reporting that U.S. Senate Banking Committee Chairman Richard Shelby (R-Ala.) is preparing legislation that would make major changes to the Federal Reserve, according to multiple sources briefed on the bill.

Shelby’s bill would establish a congressional commission for restructuring the central bank. The central bank would be required to implement the commission’s recommendations absent a joint resolution of disapproval from Congress.

The draft of the bill also includes a provision from Sen. Jack Reed (D-R.I.) that would make the New York Federal Reserve president subject to Senate confirmation.

The provisions are part of a broader effort by Shelby to empower regional Federal Reserve Banks, which are now sidelined in routine operational decisions by the bank’s Board of Governors.

ThomasJeffersonQuoteA bipartisan group of lawmakers has expressed concerns that the New York Fed has too much power, especially given its proximity to Wall Street.

Senate Banking committee spokeswoman Torrie Miller said that “a committee bill is not yet final and parts are still being considered.”

While certain aspects of Shelby’s bill have bipartisan support, a Democratic Senate source said that there are “poison pills” that could cost him support.

The current draft of the legislation would require Fed policymakers to use a “mechanical rule” to set monetary policy, thereby establishing a formula for raising interest rates. House Democrats have opposed that idea in the past.

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