Republican lawmakers in the U.S. House and Senate said they want to compel the Federal Reserve to focus solely on controlling inflation, upending a congressional mandate that’s shaped monetary policy for more than 30 years.
U.S. Representative Mike Pence, chairman of the House Republican Conference, said he plans to introduce a bill today requiring the Fed to promote price stability while no longer seeking maximum employment. Senator Bob Corker, a member of the Senate Banking Committee, backed a single mandate for the Fed, saying the Fed’s dual roles are “confusing to the market.”
The central bank is currently required by a 1977 amendment to the Federal Reserve Act to promote stable prices and full employment. The Fed’s Nov. 3 decision to buy $600 billion of Treasuries in a bid to reduce unemployment has spawned critics, including officials in China, Germany, and Brazil, and U.S. economists such as John Taylor and Michael Boskin.
Corker, who met with Fed Chairman Ben Bernanke yesterday, said in an interview today that the Fed’s dual role “can create sort of a bipolar mentality,” and that his proposal would not prevent the Fed from addressing any threat of deflation or its program to buy Treasuries.
Congress should consider setting a target for inflation because the Fed’s actions can cause “a lot of confusion for all concerned,” said Corker, from Tennessee.
“The Fed’s dual mandate has failed,” Pence, of Indiana, said in a statement yesterday. He wants the proposed legislation to be considered in Congress’s current lame-duck session, said Matt Lloyd, the conference’s communications director.
Pence joined critics yesterday after an open letter was sent by former Republican government officials and economists, asking Bernanke to halt the expansion of monetary stimulus.
“It’s time for the Fed to be solely focused on price stability and not the recently announced QE2,” said the 51- year-old lawmaker. Pence said the Fed’s second round of quantitative easing will monetize the U.S. government’s debt and ignite inflation.
House Republican Leader John Boehner of Ohio, who will become speaker when the newly elected Congress convenes in January, declined to comment today when asked whether he would put Pence’s legislation to a vote.
House Financial Services Committee Chairman Barney Frank said yesterday that “it would be a very dumb fight” for Republicans to press legislation to eliminate the Fed’s dual mandate.
“The notion that the Fed should be indifferent to unemployment is a terrible idea, damaging to the economy,” the Democrat from Massachusetts told reporters.
Before any House-approved bill can become law, it has to be passed by the Senate and then go to President Barack Obama for his signature.
Democrats still control both houses during the lame-duck session that began yesterday. Republicans gained at least 60 House seats in the Nov. 2 election, enabling the party to seize a majority in the chamber in January. Republicans gained six seats in the Senate, trimming the Democrats’ control to 53-47.
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