Why Kevin Warsh is on Capitol Hill today

Kevin Warsh was on Capitol Hill on Tuesday in the first of two days of semiannual congressional hearings on monetary policy.

The Federal Reserve is required to report to Congress twice a year by the Full Employment and Balanced Growth Act of 1978, often called the Humphrey-Hawkins Act after the bill’s original sponsors, Hubert Humphrey and Augustus Hawkins.

“It is the case that we always get change when there's a crisis,” said Martha Olney, an economic historian and professor emerita at UC Berkeley.

In the 1970s, the U.S. economy was experiencing stagflation. In 1974, the year that Humphrey-Hawkins was introduced, inflation hit double digits, real GDP shrank, and the unemployment rate rose.

“Congress, in light of how bad economic conditions had been in the 1970s, set some new expectations and rules for the Federal Reserve,” said Olney. “The Humphrey-Hawkins Act says, ‘OK, it's not just the federal government's responsibility to take care of employment and inflation; it's the central bank's responsibility.’”

That explicitly enshrined the dual mandate — balancing stable prices and maximum employment — as the Fed’s responsibility.

But the legislation that Humphrey and Hawkins originally proposed had much bigger ambitions.

“The purpose of the bill in its earliest iteration is to create a federal guarantee for a job for all Americans,” said Patrick Andelic, an assistant professor at the U.K.’s Northumbria University in Newcastle upon Tyne.

He said early versions of the bill required Congress, the president, and the Fed to work together on a coordinated economic plan and would have created a legally enforceable right for anyone who wanted a job to have a job.

“An American who remains persistently unemployed, in theory, would have been able to sue the federal government for relief and damages,” he said. “There are a series of negotiations, basically through 1977, that strip a lot of the more radical elements out of the bill.”

The 1970s were also the Watergate decade — a time when American politics was shifting past the post-World War II “Great Society” era and into the days of anti-big government.

“The final version is a much more watered-down bill,” said Andelic. Big goals, like maximizing employment and stabilizing inflation, remained, but many of the enforcement mechanisms were stripped away.

However, one mechanism that did survive was a requirement for the Federal Reserve Board to report to Congress twice a year. “Which is kind of how we get from the original Humphrey-Hawkins Act to the Federal Reserve chairman appearing twice a year to give this monetary policy report to Congress,” he said.

In recent decades, the Federal Reserve has been much more communicative with the public, something that Fed Chair Kevin Warsh intends to review.

“If Warsh scales that back, if he decides to give fewer press conferences, if there's less forward guidance, [if] there's just less information provided to the public in the wake of FOMC decisions, then his Humphrey-Hawkins testimony is going to become much more significant than the testimony of prior Fed chairs,” Hiltsaid.