Republican lawmakers on Tuesday called for a narrowing of the Federal Reserve’s focus to price stability, the latest attempt by Republicans to politically tamper with the central bank.
A day after holding a long meeting with Fed Chairman Ben Bernanke, Sen. Bob Corker (R., Tenn.) said the central bank’s “overly broad dual mandate” should be changed so that full employment will no longer be its responsibility.
“Having a dual mandate is confusing to the Fed, confusing to the public and confusing to financial markets,” he said.
Corker also suggested the Fed echo a technique used by other central banks: setting clear inflation targets. Such a move could aid in bringing down unemployment, he said.
Corker and a top House Republican, Rep. Mike Pence of Indiana, are proposing legislation that would strip the Fed of its dual mandate and instead give it a singular focus of fighting inflation.
“The onus for getting Americans back to work should not fall on the Fed,” Pence said.
The move comes as the Fed’s latest attempt to spur growth and jobs by buying $600 billion in government debt is coming under increasing fire from Republican politicians and economists who are worried it could cause a sharp rise in inflation.
A group of Republican-leaning economists published a letter in Tuesday’s Wall Street Journal asking Bernanke to drop the bond purchases, saying it could spark inflation and hurt the U.S. dollar.
The majority of central banks in large advanced economies have price stability as their only goal. But the Fed was given two objectives by Congress: After the 1930s Great Depression and high unemployment, the Fed was tasked with keeping the economy and jobs growing. Price stability was added following the double-digit inflation seen in the 1970s.
The Fed’s two objectives of full employment and stable prices are appropriate, a Fed spokeswoman said Tuesday.
“The Federal Reserve is not seeking a change to its statutory mandate. The dual mandate is appropriate,” spokeswoman Michelle Smith said.
Lawmakers said their push wasn’t politically motivated but instead aimed at making Fed policy more clear and protecting the value of the dollar.
“Printing money is no substitute for sound fiscal policy,” Pence said.
The Fed’s latest bond-buying effort “will do nothing more than dilute the value of the dollar and further disrupt the global financial system,” he said.
Senate Minority Leader Mitch McConnell (R., Ky.) said removing the full-employment part from the Fed’s mandate would be “one of the many issues we’ll be thinking about in the coming weeks.”
Corker is a moderate Republican who is scheduled to be up for reelection in 2012. Moderate Republicans faced stiff challenges from more right-wing members at recent elections.
Corker is also a member of the Senate Banking Committee, which voted 16-7 Tuesday to approve the nomination of economist and recent Nobel laureate Peter Diamond to the Fed board. It was a second attempt to move forward his stalled candidacy. The Massachusetts Institute of Technology economist was rebuffed by Senate Republicans just weeks before winning the Nobel prize. Republicans said at the time that he lacked the appropriate economic policy background.
Luca Di Leo and Meena Thiruvengadam, Dow Jones Newswires