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Posted at 10:40 AM ET, 11/16/2010

Republicans: Fed should focus on fighting inflation, not on job creation

By Neil Irwin

A second top Republican is arguing that the Federal Reserve's mandate from Congress should be changed so that the central bank is no longer charged with maintaining low unemployment.

Sen. Bob Corker (R-Tenn.), a member of the Senate Banking Committee, has called for the Fed's current "dual mandate" -- to pursue maximum employment and price stability -- be amended to order the central bank to focus only on maintaining stable prices.

"It is time that we work to clarify the mandate of the Federal Reserve. 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 in a statement issued by his office.

Rep. Mike Pence (R-Ind.) broached the same idea in a CNBC interview Monday.

The proposal comes as congressional Republicans are denouncing the Fed for its decision two weeks ago to buy $600 billion in Treasury bonds in a bid to boost the ailing economy. Fed Chairman Ben S. Bernanke has described the move as a logical action to fulfill the central bank's mission. He argues that unemployment is far too high (at 9.6 percent) and inflation running below the 2 percent or so level that Fed leaders believe to be optimal for stable prices in the long run.

Corker announced his new position after a closed-door meeting with Bernanke on Monday, at which the Fed chairman briefed the Tennessee senator on the recent action.

"At this meeting, Corker probed Chairman Bernanke on recent actions by the Fed," the statement said. "As a result of lengthy research and discussion, Corker believes now is the time to direct the mandate of the Fed to focus only on price stability."

Having the Fed focus only on stable prices would make its mandate more in line with that of the European Central Bank. That bank is legally charged with maintaining inflation at or just below 2 percent but has no formal responsibility to juggle that with trying to keep unemployment low.

Amending the Fed's responsibilities would require Congressional action. The current dual mandate was put in place in 1978 as part of the Humphrey-Hawkins Full Employment Act. However, with Democrats maintaining their majority in the Senate, there is little chance of such a change in the near term.

By Neil Irwin  | November 16, 2010; 10:40 AM ET
Categories:  Federal Reserve  
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Next: Geithner says Congress must resolve tax issue by end of year


It is simple. Disinflation accomplishes the conservative goal of maximizing the wealth of the rich. They're perfectly willing to exploit the status quo to their own advantage.

Low inflation is not an end, it is a means to an end. Changing the Fed's mandate would be doing a disservice to the majority of US citizens.

Posted by: zosima | November 16, 2010 1:21 PM | Report abuse

I don't know what inflation numbers the Fed is looking at, but as a consumer I see food prices skyrocketing, as they have for the last 5 or so years. The only prices that have come down are housing if you are buying a house. That may benefit 1st time home buyers but not people who have to sell their house in order to move. The Fed is insanely pursuing a policy of printing money which will cause inflation down the road. Inflation is extremely difficult to get under control and we will all be much worse off because of the Fed. The Fed should focus only on controlling inflation and stimulating the economy with the adjustment of short-term interest rates and nothing else. The federal government has the responsibility and the means to deal with unemployment.

Posted by: lecat | November 16, 2010 3:44 PM | Report abuse

Can someone explain..where the checks and balances are.. is the Fed.. exempt? do they answer to anyone?

Posted by: Anonymous | November 16, 2010 4:21 PM | Report abuse

Evidence is coming out that the problem with government is not so much that a government institution is dysfunctional on its face, but that we shackle that instution with so many rules, procedures and regulations that its workers cannot make on the ground decisions.

In other words, it's like the President and Congress trying to tell a Marine squad on the ground in Afghanistan exactly what it should do in every instance, rather than letting the commander and troops decide on their own, following basic guidelines.

Congress has to learn not to try to micro-manage everything.

So Corker's idea may be on the right track, perhaps best is to allow the FED to do whatever it feels is best for the economy, (a broad mandate), rather than specific ones.

But his timing is horrendous. He's trying to mirco-manage the FED at exactly the time they need to focus hard on doing their jobs. We are in a perilous situation. Let the FED do their job.

He should stand down until things quiet down.

Posted by: camasca | November 19, 2010 11:44 AM | Report abuse

In the long run, maintaining inflation at no more than 2% a year will create stability in the economy and the predictability necessary for investors and businessmen to make hiring and production decisions. Messing with the economy, like causing the tech bubble in the late 90's and then trying to remedy it with the housing bubble from 2003 to 2006, leaves the FED now looking for its next big bubble to help more the economy along. Getting full employment off the FED's table would likely result in more intelligent decisions being made for everyone's long term best welfare. In the short run, Keynes was a idiot.

Posted by: droberts57 | November 19, 2010 7:14 PM | Report abuse

Maybe Bernanke could cut a deal with the Republican critics. The Fed will focus on inflation, and not job creation, IF the Republicans will focus on job creation and NOT POLITICAL GAMES.

Posted by: OldUncleTom | November 19, 2010 7:19 PM | Report abuse

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