Fed Reform Bill Bans Mortgage-Backed Securities Purchases, Mandates New Reports on Middle Class Health

The Federal Reserve—the central bank that manages the money supply and tries to keep the economy stable—is facing a significant operational shake-up with the introduction of the “Regular Order for Investments of the Federal Reserve Act,” or the ROI of the Federal Reserve Act. This legislation targets two main areas: how the Fed operates and what it must report to Congress. Essentially, it attempts to pull back the curtain on the Fed’s impact on everyday life while putting new, tight restrictions on its toolkit.

The Fed’s New Homework: Reporting on Your Wallet

If this bill passes, the Federal Reserve Board and every regional Fed bank will have to start sending two new annual reports to Congress, focusing on key areas that affect most working Americans. First, they must analyze the “status and health of the middle class” and detail how the Fed’s policies have either helped or hurt that group’s growth. Second, they have to produce a deep dive on how their actions—specifically their balance sheet size and the interest they pay banks—have impacted small business lending and credit availability since 2000. For anyone who thinks the Fed’s decisions happen in a vacuum, these reports are designed to force the central bank to connect its high-level monetary policy to kitchen-table finances and Main Street credit access. This pushes accountability by making the Fed quantify its real-world impact on entrepreneurs and families.

Taking Tools Out of the Toolbox: Asset Restrictions

Perhaps the biggest operational change is what the Fed will no longer be allowed to buy. The bill puts hard limits on the assets Federal Reserve banks can hold, starting immediately upon the law’s effective date. Crucially, it bans the purchase of mortgage-backed securities (MBS) entirely. The Fed used MBS purchases extensively during the 2008 financial crisis and the 2020 pandemic to stabilize the housing market and keep interest rates low. Removing this tool means that in the next housing downturn, the Fed won't be able to step in and directly support the mortgage market in the same way. Furthermore, the bill prohibits the purchase of any Treasury bill that matures in more than three years, effectively forcing the Fed to focus its open market operations on short-term debt and limiting its ability to influence long-term interest rates.

Accounting Gets a Reality Check

The final section cleans up the Fed’s bookkeeping by requiring it to adopt standard, real-world accounting practices. Currently, the Fed uses its own specialized rules, but this bill mandates that the Board, the Federal Open Market Committee (FOMC), and all Fed banks must use Generally Accepted Accounting Principles (GAAP) for all financial reports. More importantly, when they estimate the value of their assets for audits and required reports, they must use mark-to-market valuations. This means valuing assets based on what they could sell for today, not what they originally paid for them. While this increases transparency for market watchers, it also means the Fed’s balance sheet figures could become much more volatile, reflecting the daily swings of the market rather than stable historical costs. For the average person, this means a clearer, but potentially more dramatic, view of the Fed’s financial health.