In the latest sign that monetary policy has become a political flashpoint, two Republican lawmakers called Tuesday for Congress to alter the Federal Reserve's mandate so it will focus solely on inflation, following concerns from conservatives that a new round of asset purchases would stoke out-of-control price hikes.
At a press conference Tuesday, Sen. Bob Corker, R-Tenn. and Rep. Mike Pence, R-Ind. called for Congress to change the Fed's "dual mandate" that now requires it to promote both price stability and full employment. A bill introduced by Pence on Tuesday would have the Fed focus only on keeping inflation low, and not worry about reducing unemployment.
"It is time that we work to clarify the mandate of the Federal Reserve," said Corker, a member of the Senate Finance Committee, in a statement announcing his support for the change. "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."
Corker said he decided to support changing the Fed's mandate after a "lengthy" meeting with Fed Chairman Ben Bernanke on Monday.
The proposal reflects a growing backlash among conservatives against the Fed's efforts to spur growth through "quantitative easing"—printing money, and using it to buy Treasury bonds. On Monday, a group of economists, investors and intellectuals—many with close ties to the Republican Party—began a newspaper advertising campaign to accuse the Fed of debasing the dollar and fueling inflation.
The Federal Reserve has had its "dual mandate" since 1977. Bernanke has long argued that the two goals actually support each other, because low inflation provides the stability for risk-taking and long-term invesment that leads to job creation. But Fed officials are now worried that inflation is actually too low for comfort, and that high unemployment could make things worse.
One member of the Fed's rate-setting committee, Thomas Hoenig, objected to the decision, citing his fears that long-term inflation expectations would rise and destabliize the economy. But all other members of the Fed's policy-setting committee, which includes both Democrats and Republicans, voted for the plan.
Even before the recent attacks, the Fed had been coming under increasing fire from both the left and the right as a result of its massive bailout of Wall Street and its eye-popping array of emergency lending programs. But the criticism has become increasingly partisan in recent weeks, with Republicans leading the charge and Democrats coming to the Fed's defense.
Some economists and policymakers now worry that the mounting political backlash could threaten the Federal Reserve's political independence, which has been one of the central bank's sacred principles for decades.
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