GOP Targeting Bernanke and the Fed
The role of the Federal Reserve will be hotly debated in 2011, but don’t expect big changes this year.
The U.S. central bank came under intense scrutiny and increased criticism following its announcement to buy $600 billion worth of Treasury bonds. The latest round of purchases, called quantitative easing, was justified by the Fed in part as a way to reduce high levels of unemployment.
Obtaining maximum employment has been part of the Federal Reserve’s mission for 30 years, but now some critics say it’s time to do away with the dual mandate, allowing the Fed to focus solely on maintaining price stability.
Longtime opponents of the U.S. central bank, such as GOP Reps. Paul Ryan of Wisconsin and Ron Paul of Texas, found allies in newly elected Republicans willing to push for changes. Paul, who wrote a book called End the Fed, has been named chairman of the Domestic Monetary Policy Subcommittee, the part of the House Financial Services Committee that oversees the Federal Reserve.
But even Paul admits that abolishing the Fed is a long shot. Still, he plans to use his chairmanship to push for more transparency and congressional oversight of the central bank.
Instead, Republican Sen. Bob Corker of Tennessee and Reps. Tom Price of Georgia and Mike Pence of Indiana advocate ending the Fed’s role in maintaining maximum employment. They argue the mandates require different -- and sometimes contradictory -- actions from the Fed.
However, a repeal of the 1978 Humphrey-Hawkins Full Employment Act, which added the employment mandate, is unlikely with the unemployment rate still high. It was 9.8% in November, and no one seems to have a solution for bringing it down. The debate would politicize the Fed, which is frowned upon by many in and out of Washington. The Obama administration, including Treasury Secretary Timothy Geithner, promises to oppose any proposals to change the Fed’s roles.
Furthermore, Fed policy wouldn’t necessarily be any different without the jobs mandate. Inflation is still below the 2% normally targeted by the Federal Open Market Committee, so many of the same measures would probably have been used by a single-mandated Fed.
The Federal Reserve has had increasing responsibilities since it was created in 1913 largely to regulate commercial banks. Most recently, the Fed and Chairman Ben Bernanke played a large role in providing liquidity to institutions at the height of the financial crisis.
The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act gives the central bank even more power to oversee financial stability. Now the Fed is responsible for systemic risk assessment and regulation, and it will house the new Consumer Financial Protection Bureau.
Republicans who want to abolish the Fed or make major adjustments to its mission probably missed their window for doing anything big. For one thing, momentum is slowing as other Republican initiatives, including repealing the health care law and reducing the federal deficit, are pushing to the forefront. Also, improving economic conditions are helping to pull the focus away from quantitative easing, which initiated much of the rage in the first place.
Expect lots of debate and plenty of inquiries by Paul’s committee. In the end, though, not much will change.