–Retransmitting Story Published 08:01 ET
–Hill Limiting Fed to Infl Mandate ‘Within The Realm Of Possible’
–‘Seriously Doubt’ Fed To Lose Monetary Policy Independence
By Brai Odion-Esene
WASHINGTON (MNI) – The Federal Reserve’s aggressive push to jolt
the economic recovery back to life has “stirred the embers” of lawmakers
who want to limit the central bank’s focus to just inflation, with the
scenario of the Fed’s maximum employment mandate being taken away
“within the realm of possible,” Dallas Federal Reserve Bank President
Richard Fisher told MNI.
In an exclusive interview, Fisher, however, said there is little to
no chance that the Fed will become subject to intrusive oversight by
Capitol Hill and lose its independence in making monetary policy
decisions.
In every country where government has taken control of monetary
policy there has been “economic disaster,” Fisher said, citing
Argentina, Weimar Germany etc. “Every responsible member of the House
and Senate knows that.”
Even after the November elections, “I seriously doubt that a
majority of Congress can be assembled to take away the independence of
the Fed,” he said.
The Fed is not just a bureaucracy in Washington, Fisher said, but
12 banks with branches all over the country that are “tremendously
supported by the citizenry, and particularly by leading citizens.”
Would he still be as confident if the Republican party won control
of both chambers of Congress? “I’m especially confident,” Fisher
replied. “The business leaders of this country … are huge supporters
of the Federal Reserve banks. They are not going to take away our
independence.”
On the other hand, “It’s possible that Congress, for example, might
decide to narrow our mandate,” Fisher said, adding, “I’m in favor of
that.”
The Fed’s policymaking Federal Open Market Committee announced on
Sept. 13 that in addition to its maturity extension program, it will buy
$40 billion in mortgage-backed securities a month — and undertake
additional asset buying if needed — until it sees a significant
improvement in the labor market, for a total of $85 billion in monthly
asset purchases.
Fisher said this aggressive move by the Fed has provided even more
motivation for the Fed’s critics on the Hill to restrict the central
bank to a single mandate.
“I do think it stirred the embers of those who would like to narrow
our mandate to inflation only,” he said, as “they think that we are
substituting for fiscal initiatives.”
Fisher noted that while the 12 regional Federal Reserve banks
usually operate independent of political input, it is the policy
decisions made by the FOMC that usually attracts criticism.
The 1913 Federal Reserve Act that created the central bank
established two key objectives for monetary policy — stable prices and
maximum employment — commonly referred to as the Fed’s dual mandate.
“That latter one seems to be of concern to some members of
Congress,” Fisher said, adding that he can foresee a scenario where
lawmakers constrain or take away the full employment objective.
“I can see that could be the subject of debate, and under certain
scenarios, I could see that happening,” he said. “That’s within the
realm of possible.”
Already, Rep. Kevin Brady, the top Republican on the Joint Economic
Committee, introduced a bill in the spring — the Sound Dollar Act —
that would narrow the Fed’s focus to price stability, eliminating its
employment mandate.
And a Republican source told MNI that it is likely, regardless of
the outcome of the November presidential election, that Republicans in
the House and the Senate “will be looking for answers to this question
of what should the role of the Fed be going forward.”
He emphasized that “this is not a short-term political thing that
is going to fade away after the presidential election. It’s a
fundamental inquiry into what’s the best monetary policy for the country
in the long term.”
The Fed’s focus should be long-term price stability, the Republican
source said, arguing that everytime the central bank has veered off that
course to try and stimulate the economy using monetary policy, “the
long-term success of that has not been very good.”
“The question is not independence — it’s what you are doing with
that independence,” the source said.
The House in July voted to approve a bill by Republican congressman
Ron Paul that calls on the Government Accountability Office to conduct a
full audit of the Federal Reserve’s monetary policy decisions.
The bill easily passed the lower chamber on a 327-to-98 vote, with
the support of almost all Republicans and about half of the Democrats.
Fisher, however, sees the chance of the bill actually becoming law
as “nearly impossible.”
He noted that on the board of each regional Fed bank are business
leaders, civic leaders and others that are “fierce” defenders of the
Federal Reserve system.
So on the subject of stripping the Fed of its independence, or
removing the regional Fed banks from the monetary policy process — as
Democratic Congressman Barney Frank has proposed — “I don’t think any
Congress person would want to hear from all these civic, business and
other leaders,” Fisher said.
Aside from that, a Democratic Senate aide told MNI that there has
not been “any serious effort” by Democrats to move any legislation that
would limit the Fed’s authority.
And while the Republicans talk of changing the Fed’s dual mandate,
the aide predicted that — short of there being a takeover in Congress
— “I just don’t see that happening at this point.”
“There hasn’t been any movement in the Senate so far, and I don’t
see how there would be going forward,” he said.
The thought process on the Democratic side, the aide explained, is
that the Dodd-Frank Act has mandated more transparency than ever before
at the Fed, making Republican efforts on the House side “more rhetoric
than serious oversight.”
** MNI Washington Bureau: 202-371-2121 **
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