Sen. Toomey: Should Congress—not the Fed—set interest rates?

Veering from bad ideas to worse ones, Republican Congress vents its frustration with defiant, apparently aimless policies promulgated by Fed Chair Janet Yellen.

Senator Pat Toomey.
Pennsylvania Senator Pat Toomey (R-PA) fires opening shot vs. Federal Reserve policy and conduct on CNBC this morning. (Screen capture of CNBC "Squawk Box" video)

WASHINGTON, July 16, 2015 – As the stock market meanders today in mildly positive territory, from our “Now We’ve Heard Everything” Department, we bring you this news item (via CNBC) to warm the cockles of every would-be statist’s heart:

“Republican Sen. Pat Toomey said Thursday it’s ‘unbelievable’ that interest rates remain so low and it’s time to end the Federal Reserve’s ‘subjective’ moving of the goal post.

“‘The Fed no longer has credibility, and you can see that. The divergence between the futures markets and the Fed’s own projections about what they’re going to do about interest rates—this is a huge problem,’ he told CNBC’s ‘Squawk Box….'”

“Toomey is a member of the Senate banking committee, which will hear testimony from Fed Chair Janet Yellen on Thursday. He has called on the central bank to adopt a rule that would lay out how it will set monetary policy. Under such a rule, the Fed would have to explain itself to Congress were it to deviate from its plan.

‘I’ve never been wild about the idea of giving Congress control over monetary policy, but after seeing what this Fed has been doing for these many years now, I’m not so sure it would be any worse,’ the Pennsylvania Republican said.”

Toomey’s comments were likely spurred by Yellen’s less-than-stellar performance Wednesday during her appearance as the star witness in the annual House Humphrey-Hawkins Federal Reserve hearings. Yellen infuriated the Republican-led House by continuing to stonewall Congress by refusing to respond to a longstanding subpoena demanding more information in an ongoing leak investigation.

Wisconsin’s Republican Representative Sean Duffy was particularly outraged by Yellen’s non-response, “accusing her and the Fed of willfully hiding documents that have been subpoenaed for an ongoing congressional leak probe,” according to CNBC.

“‘You did absolutely nothing—zero. … You did nothing to perpetuate an investigation that would lead us to the truth,’ Duffy charged. ‘Madam Chair, it appears that you are the one who is jeopardizing—or the Fed is the one who is jeopardizing—this investigation. Am I wrong?’”

Continuing the stonewall and claiming “‘We want this investigation to succeed,’” Yellen continued to resist the Congressional subpoena, claiming “she plans to turn over all the requested documents once the investigations by the DOJ and the Fed’s inspector general are completed,” which means, in this most transparent of Administrations, January 20, 2017, if ever. Maybe it’s just that, like Tom Cruise, we can’t handle the truth.

Given Senator Toomey’s remarks earlier today, it looks like Yellen’s Wednesday testimony before the U.S. Senate will go just as swimmingly as did her appearance before the House.

The broader question, of course, increasingly involves the responsibility for U.S. monetary policy in toto. Clearly, the power of the purse resides with Congress. The Federal Reserve’s vaunted “independence,” much of which dates back to the New Deal era, was set up by Congress and the President, at least in part, to de-politicize key economic decisions to the benefit of the American people.

Unfortunately, due to both legal wording and developing tradition, the Fed’s powers have gradually evolved to favor the banking industry over all else and to support the political whims and desires of any sitting President, particularly if he happens to be a Democrat.

It could be forcefully argued today that the Fed has, in fact, become complicit in furthering the economic destruction wrought by the political left, feathering the nests of monied interests that support key Congressmen and Administration officials and ignoring the now 7-years-and-running fiscal plight of average Americans.

Under these circumstances, we can charitably equate Senator Toomey’s outburst as a cry of despair at this point. Yellen, the Fed’s Inspector General, and the corrupt and politicized DOJ will stonewall both Toomey and his fellow Republicans who are currently at a loss as to how to restore the authority of their own independent branch of government. No wonder things are getting a bit more heated than usual during the current Humphrey-Hawkins hearings.

More troubling, however is this: Can we trust any member of any party in any branch of the Federal government to be responsive to the interests of the average U.S. citizen? Instinctively, most of us who pay any attention to such things would answer a resounding “No!”

As the feckless Greeks have demonstrated over the past few weeks, when the people in a democracy completely lose control of government, disaster and ruin are quick to follow as are their devastating and long-lasting consequences. We’ll have to see how this plays out.

Meanwhile, the upshot of Yellen’s testimony would seem to be that whether anyone likes it or not, U.S. interest rates will start creeping up either early this fall or at the latest, around the turn of 2016. What that decision is based on anything real, other than a desire by banks to return to “normal,” remains to be seen. The only sure thing seems to be that the average U.S. wage-earner and taxpayer will get it in the ear once again.

The bigger question is, when is the American public going to adopt Popeye’s useful and forceful mantra, “I’ve stood all I can stand, and I can’t stands no more.”

Today’s trading tips

Since the banks are being fed by the Fed, that’s still where to go, although as we noted Wednesday, such investments will have a long fuse, so they’re not for the impatient.

Otherwise, we’re at a loss when it comes to getting truly enthusiastic about other investments, aside from a few select choices in the universe of pancaked REITs—notably Two Harbors (symbol: TWO) and Pennymac (PMT).

We continue to get slaughtered in our few remaining oils so don’t go there. Ditto the oil and gas Master Limited Partnership (MLP) ETF Alps Alerian MLP ETF (AMLP) which holds a basket of good dividend-paying MLPs.

AMLP has the added attraction of aggregating the payouts of the underlying MLPs, freeing investors from the mind-blowingly tedious task of compiling data from endless K-1 forms in order to file personal tax returns. We (legally) get K-1s from various MLPs as late as July each year, meaning we have to file late, which is a pain. But the yields are generally too good to pass up.

Problem is, with both MLPs purchased one by one and with AMLP is that there’s a great deal of angst in the oil patch right now. Prices are under pressure, and yields may start to “yield” as well.

We’re down significantly in our AMLP position, and can’t really answer the burning question, “Should I double down and buy more for less, or should I get out?” Since we still can’t answer that question with confidence, maybe it’s best for you not to go there for now.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17