Tags: republican | fed | policy

Republican Leaders Warn Fed Against Making any Policy Move

Tuesday, 20 Sep 2011 07:37 PM

 

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In an unusual move, Republican leaders of the House and Senate are urging Federal Reserve policymakers against taking further steps to lower interest rates.

On the eve of the Fed's two-day policy meeting, the leaders sent a letter to Chairman Ben Bernanke warning that the Fed's policies could harm an already weak U.S. economy.

The letter, sent Monday, was signed by Senate Republican Leader Mitch McConnell of Kentucky, Senate Republican Whip Jon Kyl of Arizona, House Speaker John Boehner of Ohio and House Majority Leader Eric Cantor of Virginia.

The letter followed criticism from several Republican presidential candidates that the Fed's efforts to boost growth have already raised the risk of high inflation.
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"The American people have reason to be skeptical of the Federal Reserve vastly increasing its role in the economy," the lawmakers wrote.

It is rare for lawmakers to try to sway policy at the Fed, which operates independently of Congress and the White House. But the letter was sent at a time when Bernanke, a Republican, has faced growing criticism from members of his own party.

Former Fed official Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, called the letter "outrageous. It's incredible."

Gagnon said it's been several decades since such high-level politicians tried so directly to influence the Fed.

"The fact that it's in print and signed by the leaders of the House and minority leaders of the Senate raises it up a notch," Gagnon said.

David Jones, head of consulting firm DMJ Advisors and the author of books on the Federal Reserve, said he can't recall another instance when members of Congress had made such a direct approach to the Fed in the week that the central bank was meeting.

"It is inappropriate for politicians to try to exert this kind of influence," Jones said.

He suggested it would make the Fed's job of managing interest rates harder because financial markets will grow concerned about whether the central bank could be unduly influenced by political pressure.

The lawmakers were responding to expectations that the Fed will announce a new step Wednesday to further lower interest rates. Republicans have been critical of the Fed's previous efforts to lower rates through the purchase of U.S. Treasurys.

The letter expressed "serious concerns" that the Fed's actions could weaken the foreign exchange value of the dollar or encourage excess borrowing by consumers who are already carrying too much debt.

Bernanke has rebuffed his critics. He has argued that rates must remain at record lows to encourage lending and invigorate the economy, which has struggled to grow more than two years after the recession officially ended.

He has acknowledged that inflation has ticked up in recent months. But Bernanke says that is mostly because of temporary factors. He expects inflation to subside in the coming months.

The comments from GOP leaders also come after Bernanke suggested that Republicans in Congress should support efforts to stimulate hiring and growth, rather than focus solely on deficit cutting.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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