A growing number of Republicans want to tie the hands of the Federal Reserve, choking off perhaps the last best hope for a speedier economic recovery.
In a sluggish economy like this one, policy makers have a handful of powerful tools at their disposal. The most conventional tool — fiscal stimulus — is politically out of reach. Republicans, led by Senate Minority Leader Mitch McConnell, have vowed to block any more deficit spending bills aimed at injecting demand into the economy.
“[W]e will loudly oppose future stimulus bills that only stimulate the deficit,” McConnell said at a recent Heritage Foundation speech.
That leaves monetary stimulus. Under its mandate to promote full employment, the Fed is supposed to use tools at its disposal to spur economic growth. Republicans want to stop that too.
In a statement to reporters Tuesday, shortly after discussing the Fed’s new monetary stimulus plan with Fed Chairman Ben Bernanke, Sen. Bob Corker (R-TN) — a member of the Senate Banking Committee — called for the end of that mandate.
“It is time that we work to clarify the mandate of the Federal Reserve,” Corker said. “Providing our central bank with a clear and explicit focus on keeping inflation low will serve America better than the broader mandate approach we have today.”
“On one hand you’ve got a mandate to keep inflation low, on the other hand to keep employment high,” Corker added to reporters yesterday. “It can create a sort of bipolar mentality…. To me, the Fed’s mandate ought to be price stability.”
This came one day after conservative Rep. Mike Pence (R-IN), the third ranking House Republican, introduced legislation to limit the Fed’s mandate to fighting inflation only. This at a time when the Fed is taking modest steps to promote inflation — a program called QE2 — to increase spending and create jobs.
Even Sarah Palin has gotten in on the act.
“All this pump priming will come at a serious price. And I mean that literally: everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so. Pump priming would push them even higher,” Palin warned in a speech earlier this month.
As you might expect, this was incorrect. Grocery prices have not risen significantly over the past year. And when Wall Street Journal reporter Sudeep Reddy pointed this out, she turned her cannons on him.
A number of economists, including Paul Krugman have called the Fed’s plan inadequate. If he’s right, and the Fed embarks on another round in the months ahead, expect this attack to be renewed.
