House Financial Services Committee presses Fed reform as inflation focus dominates hearing

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Fed reform focus in Congress

Highlights

Hill warns that inflation remains above the Fed's 2 percent target, pressing Warsh to maintain price stability until objectives are met.
Hill blames the Fed's August 2020 flexible average inflation targeting and delayed response since March 2021 for triggering the sharpest inflation surge since the 1980s.
Hill criticizes prolonged quantitative easing and the Fed's expanded regulatory efforts, arguing reform is necessary to restore the central bank's apolitical standing and independence.

Congressional hearing sharpens focus on Fed mandate

As reported by Financial Services Committee, citing the House Committee on Financial Services, Chairman French Hill says the Federal Reserve needs structural reform as the committee hears testimony from Fed Chairman Kevin Warsh on the central bank's Semi-Annual Monetary Policy Report.

Hill tells the hearing that inflation remains above the Fed's 2 percent target and warns that the U.S. cannot afford a repeat of the double-dip inflation seen in the 1970s and 1980s. He says Congress expects the Fed to stay committed to price stability under Warsh's leadership and maintain that course until the objective is achieved.

Hill also links the current inflation backdrop to the Fed's August 2020 adoption of a flexible average inflation targeting framework, which allowed inflation to run moderately above 2 percent after periods of undershooting. He says that policy, combined with what he calls irresponsible fiscal policy and a slow response after inflation began in March 2021, contributed to the sharpest inflation surge since the 1980s.

Balance sheet policy and regulatory scope face criticism

Beyond inflation targeting, Hill criticizes the Fed's long-running use of quantitative easing, saying repeated large-scale purchases of Treasuries and agency mortgage-backed securities continued well beyond crisis conditions. He says those policies left the Fed holding a quarter of federal debt in 2022, creating incentives for fiscal policymakers to delay difficult decisions on deficits and debt, even though that share has since declined.

Hill also argues that the Fed has expanded beyond its statutory role in supervision and regulation. He says recent efforts tied to digital assets and climate-related oversight amount to mission creep, and contends the central bank should avoid politically charged actions that belong to Congress.

He frames reform as a way to restore the Fed's standing as an apolitical institution and preserve its long-term monetary policy independence, rather than as a punitive step. The hearing highlights how debate over inflation control, balance sheet policy and regulatory boundaries is shaping the committee's oversight of the central bank.

In our earlier article on Kevin Warsh’s balance sheet testimony to the House Financial Services Committee, we outlined his pledge to give markets and Congress ample advance notice before any shift in Fed asset-holding policy. We also noted his emphasis on transparency and consultation, signaling that any change to the Fed’s balance sheet would likely be gradual and kept clearly separate from fiscal policy.

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