The letter that Republican leaders sent to the central bank is nothing to worry about
Politicians like to exert their influence on issues they care about. If you find this shocking, then you might be appalled to hear that Congressional Republican leaders sent a letter to Federal Reserve Chairman Ben Bernanke on Monday urging restraint on additional monetary stimulus. Anyone who finds this action unprecedented must not follow politics very closely. In fact, both sides of the aisle do what they can to try to shape Fed policy. But luckily, this political reality is nothing to worry about.
What the GOP Wants
The gist of the letter can be understood through its first paragraph:
It is our understanding that the Board Members of the Federal Reserve will meet later this week to consider additional monetary stimulus proposals. We write to express our reservations about any such measures. Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.
Republicans are concerned that additional monetary stimulus could weaken the dollar. They're also unconvinced that additional intervention will have a meaningful positive impact on the economy. Unfortunately, the statistics back them up: despite a $600 billion monetary stimulus launched from November 2010 through June 2011, U.S. economic growth in the first half of the year was just 0.7%. And for most of that period, job growth was weak to nonexistent.
Democrats Also Like to Pressure the Fed
To be sure, the GOP has been aggressive in its criticism of the Fed in recent years. Of course, Democrats have also tried to exert their influence as well. As it would happen, today's Wall Street Journal editorial actually criticizes Rep. Barney Frank (D-MA), a co-architect of last summer's financial regulation bill, for trying to sway the Fed with a new bill.
Last week, he introduced legislation that would require a Senate confirmation of all Federal Open Market Committee members, the monetary policymakers. Currently, the regional Fed presidents that serve on the committee are chosen by the industry. This helps to promote Fed independence. But it also results in some committee members having a more hawkish view on inflation that those Washington blesses, who may have more interest in stimulating the economy.
Frank's bill threatens the Fed in precisely the opposite direction that the GOP's letter does. He wants more action; the Republicans want less action. Welcome to Washington. If anything, Frank's action is even more aggressive, since it would result in more ongoing Congressional power over the Fed. The GOP's letter is just a request, just words.
And Ultimately, the Letter Doesn't Matter
For better or for worse, the Republicans' letter will almost certainly have no influence on the Fed's decision this week. The central bank is designed to be independent. While the committee members may feel free to take the GOP's advice into consideration, they can also totally ignore it.
This Fed committee, in particular, is quite unlikely to care what the GOP has to say. Several of its members are Obama appointees. Its leader, Ben Bernanke, is almost certainly serving his final term, which makes him a sort of lame-duck chairman. He already knows that there is next to zero chance that a Republican president would reappoint him. So he has nothing to lose by ignoring the GOP letter: it provides no new threat. He already knew that he has few friends on the right.
So let's not feign outrage about the GOP's attempt to sway the Fed's decision this week. It isn't unprecedented. In fact, it isn't even very threatening. And besides, the Fed will do what it wants anyway. After all, we've got an independent central bank precisely to avoid political influence.
Image Credit: REUTERS/Jason Reed
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