Representative Kevin Brady, the top Republican on the Joint Economic Committee, introduced a bill that would narrow the Federal Reserve’s focus to price stability, eliminating its mandate to promote full employment.
“Except in the very short term, monetary policy can’t boost the economy and job creation,” Brady of Texas said in a statement today. “It makes no sense for Congress to charge the Federal Reserve to control what it cannot. Let’s give the Fed a clear mandate, focus it on the mission of stable prices and hold it accountable for the results.”
The legislation, with 23 co-sponsors, would also restrict the central bank’s balance sheet to Treasury securities, speed the release of transcripts from Federal Open Market Committee meetings and give the Fed’s 12 regional bank presidents permanent votes on monetary policy.
Known as the Sound Dollar Act, the bill has sparked a partisan reaction. Its co-sponsors are Republicans, with most of them members of the Republican Study Committee, a group of fiscal conservatives.
Representative Barney Frank of Massachusetts, the senior Democrat on the House Financial Services Committee, and the panel’s 26 other Democrats yesterday opposed the legislation in a letter to the committee chairman. They also requested a hearing on the bill.
“We believe strongly that the dual mandate should be maintained, and we believe that the Federal Reserve’s actions in pursuit of that mandate have been helpful in dealing with our unemployment problem,” the Democrats said in a letter to Representative Spencer Bachus, an Alabama Republican and the committee chairman.
“We have not scheduled any committee action on the bill yet,” said Jeff Emerson, a spokesman for Republicans on the committee. “The committee has conducted extensive oversight of the Federal Reserve and has much more planned for the rest of this year, not just on the dual mandate but also on transparency, accountability, the Fed’s role in the Eurozone crisis response, and its implementation of Dodd-Frank.”
Fed Chairman Ben S. Bernanke and his colleagues on the FOMC in January formally adopted a 2 percent goal for the rate of inflation and also pledged to move the economy toward maximum employment, which they currently estimate as a jobless rate between 5.2 percent and 6 percent.
Bernanke defended the inflation goal on Feb. 2 after Republican Representative Paul Ryan of Wisconsin suggested the Fed might be willing to tolerate higher inflation to fulfill its other mandate to bring about maximum employment.
‘Bring Inflation Back’
“Over a period of time we want to move inflation always back toward 2 percent,” Bernanke said in Washington in response to a question from Ryan, chairman of the House Budget Committee. “We’re always trying to bring inflation back to the target.”
Representative Mick Mulvaney, a South Carolina Republican and one of the bill’s co-sponsors, asked Bernanke in an Oct. 4 congressional hearing whether the Fed would be “better positioned to provide clarity and stability” if it were focused on one mandate instead of two.
Bernanke said central banks with a single mandate also pay close attention to broader economic conditions. Also, the Fed does have “some ability” to reduce unemployment, he said.
“My bottom line is I think we can make the dual mandate work,” Bernanke said in the Oct. 4 hearing before the Joint Economic Committee. “I think it’s worked pretty well. But, of course, it’s up to Congress. If you want to change to a single mandate, we will do whatever you assign us to do.”