GOP Letter to Bernanke

Here’s the text of the letter sent by top Republicans to Ben Bernanke:

Dear Chairman Bernanke,

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.

It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitated economic growth or reduced the unemployment rate. To the contrary, there has been significant concern expressed by Federal Reserve Board Members, academics, business leaders, Members of Congress and the public. Although the goal of quantitative easing was, in part, to stabilize the price level against deflationary fears, the Federal Reserve’s actions have likely led to more fluctuations and uncertainty in our already weak economy.

We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers. To date, we have seen no evidence that further monetary stimulus will create jobs or provide a sustainable path towards economic recovery.

Ultimately, the American economy is driven by the confidence of consumers and investors and the innovations of its workers. The American people have reason to be skeptical of the Federal Reserve vastly increasing its role in the economy if measurable outcomes cannot be demonstrated.

We respectfully request that a copy of this letter be shared with each Member of the Board.

Sincerely,

Sen. Mitch McConnell, Rep. John Boehner, Sen. Jon Kyl, Rep. Eric Cantor

That’s actually far more modest than some folks are making it out to be. Naturally, we’re hearing that this kind of thing is a threat to the Fed’s independence.

Personally, I think too much is made of the Fed’s “independence.” The Fed isn’t independent — it’s a creation of Congress. The Federal Reserve Act is an act of Congress. As such, I think Congress is free to interfere as much as they want. Basically, if the American people want 20% inflation, they should get it (good and hard).

What the Fed needs is latitude to carry out its goals, but the goals should unquestionably be from Congress. Another idea of asserting Congressional control is Rep. Barney Frank’s idea to strip voting power from the regional bank presidents.

The Federal Reserve has seven governors, but the Federal Open Market Committee, which is the interest rate policy group, has 12 members. Those 12 members consist of the seven Fed governors plus five of the 12 regional bank presidents. The head of the New York Fed is always a member but the remaining four slots rotate among the other regional bank presidents.

As you might expect, since the bank presidents represent their banks, they have historically been in favor of sound money — at least compared with the governors who are appointed by the president.

Posted by on September 21st, 2011 at 1:01 pm


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