In this report, we analyze today’s FinServ Monetary Policy and Trade Subcommittee hearing continuing the thrust of work evident even early in this session towards significant GOP-driven change not only in the way the FRB makes monetary policy or provides liquidity backstops (the 2016 agenda), but now also the extent to which the central bank may hold its large portfolio and pay interest on excess reserves (IOER).  Reflecting the view of Chairman Hensarling (R-TX), Rep. Williams (R-TX) argued that excess reserves and what he called the above-market IOER rate provide a subsidy to large domestic and foreign banks that dissuades them from lending.  Several GOP Members also argued that the FRB’s portfolio distorts markets and allocates credit.  Democrats neither agreed with nor argued against this position, but Ranking Member Moore (D-WI) did express her desire to see monetary policy normalized.

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