–In Latest Shot at Fed, Hill GOP Leaders Challenge Bernanke On QE2
–Two Hill Republicans Seek To Narrow Fed’s Mandate
–Bernanke Will Soon Have Many Chances To Explain Fed To Congress

By John Shaw

WASHINGTON (MNI) – Having tapped into populist anger over the state
of the American economy during the mid-term elections, congressional
Republicans have begun to channel this anger into sharp attacks at the
Federal Reserve Board.

In the most recent salvo, the top four congressional Republican
leaders sent a letter to Federal Reserve Board Chairman Ben Bernanke
expressing “deep concerns” about the Fed’s new round of quantitative
easing.

In the letter, House Republican leaders John Boehner and Eric
Cantor and Senate Republican leaders Mitch McConnell and Jon Kyl told
Bernanke that the latest Fed actions “introduces significant
uncertainty regarding the future strength of the dollar.”

They added that the Fed’s aggressive approach to monetary policy is
“giving the impression that the Federal Reserve will keep making new and
different attempts to boost the short-term prospects for the economy.”

The letter to Bernanke comes on the same day that the Fed chairman
traveled to Capitol Hill to brief the Senate Banking Committee on the
central bank’s strategy to help stabilize and strengthen the economy.

Sen. Richard Shelby, the ranking Republican on the Senate Banking
Committee, left the session with Bernanke saying the Fed chief did not
put to rest Shelby’s misgivings about QE2.

“I’m still concerned,” Shelby said, adding the Fed has moved into
new territory in its conduct of monetary policy.

Sen. Evan Bayh, a Democratic member of the Banking Committee, left
the same briefing by offering a strong defense of Bernanke.

Bayh said Bernanke gave him the clear impression that he would much
prefer that Congress “take the lead” in bolstering growth.

Bayh said Bernanke has decided in the current environment of slow
growth and virtually no inflation to “err on the side of growth” by
implementing aggressive monetary policies.

The Fed’s new policies have also prompted several Republicans to
say they are introducing legislation that would restrict the Fed’s
mandate to price stability, dropping its responsibility to seek full
employment.

On Tuesday, Sen. Bob Corker, a member of the Senate Banking
Committee, and Rep. Mike Pence, a member of the House Republican
leadership team, said they are introducing legislation that would end
the Federal Reserve’s dual mandate.

At a briefing, they argued that the central bank’s exclusive focus
should be on price stability.

Corker said he met with Bernanke on Monday and is convinced the Fed
should have a “single more focused mandate that will direct the central
bank to focus solely on price stability.”

The legislation appears to be part of an intensified Republican
critique of the Fed and its aggressive efforts to bolster the U.S.
economy through two iterations of quantitative easing.

Congressional Republicans say they fear that the central bank’s
actions may increase inflationary pressures in the economy.

As a practical matter, if the U.S. economy picks up strength and
inflation remains low next year the legislation and GOP criticisms of
the Fed are likely to subside. However, if the economy continues to
struggle and inflation surges, Fed-related bills will receive a full
hearing next year–and attacks on the Fed may become a bipartisan
activity.

Bernanke will testify a number of times on Capitol Hill in the
early months of 2011 and will have nearly a half dozen opportunities to
explain the Fed’s policies and what it hopes to achieve by its recent
actions.

** Market News International Washington Bureau: 202-371-2121 **

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