WASHINGTON — To prevent the Federal Reserve Board from expanding its monetary stimulus, Republicans are seeking to end the central bank's dual mandate.
Rep. Mike Pence of Indiana, chairman of the House Republican Conference, introduced a bill Tuesday to winnow the central bank's dual mandate to two areas: price stability and inflation.
"The Fed's dual mandate policy has failed," Pence said. "For a record 18th straight month the nation's unemployment rate is at or above 9.4%."
Pence joined a growing list of critics of the dual mandate. The group includes economists and former Republican government officials who wrote an open letter to Fed Chairman Ben Bernanke asking the central plan to drop its plan to buy $600 billion in additional U.S. Treasury bonds.
The letter was signed by Douglas Holtz-Eakin, former director for the Congressional Budget Office, and John Taylor, former Treasury undersecretary for international affairs, among many others.
"We do not believe such a plan is necessary or advisable under current circumstances," the conservative think tank Economic Policies of the 21st Century wrote Monday in its open letter. "The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment."
In a Nov. 4 op-ed in The Washington Post, Bernanke sought to dismiss such criticism. He wrote that the Fed's Nov. 3 action, known as quantitative easing, would help the central bank fulfill its obligation to promote increased employment and sustain price stability.
But, Pence said, "It's time for the Fed to be sorely focused on price stability and not the recently announced QE2 which will monetize our debt and trigger inflation."
Sen. Bob Corker of Tennessee, a member of the Senate Banking Committee, became the second Republican lawmaker in two days to publicly endorse narrowing the Fed's dual mandate.
In an interview on CNBC, Corker said the central bank's "dual mandate creates a lot of confusion. It's time to bring clarity to the Fed."
Corker compared the Fed's dual mandate to the competing public and private interests of the mortgage government-sponsored enterprises Fannie Mae and Freddie Mac before they were taken into conservatorship in September 2008.
"It is time that we work to clarify the mandate of the Federal Reserve," Corker said in a press release.
"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."
The Fed's dual mandate makes the central bank focus on price stability and unemployment (bank supervision, while a responsibility of the Fed, is not one of its two top priorities).
President Obama and Treasury Department Secretary Tim Geithner have defended the Fed's actions, even though the White House typically abstains from commenting on monetary policy. Obama said last week that the central bank's decision to buy more bonds "was designed to grow the economy," not weaken the dollar.
Countries like Germany, China and Brazil have argued that the Fed's move would undervalue the dollar and give the U.S. a competitive advantage with its exports.
For its part, the Fed has also taken steps to defend its action, and has said clearly the central bank is only one part of the solution.
In response to lawmakers' comments on Tuesday, a Fed spokeswoman added that "The Federal Reserve is not seeking a change to its statutory mandate."