Earlier this month, the Federal Reserve launched a round of quantitative easing — known as QE2 — in an attempt to entice consumers and businesses into spending and spurring economic growth. With interest rates already at the zero bound, and the prospects of further fiscal stimulus coming from the Congress virtually non-existent, QE2 is essentially the last policy option that the federal government has to try to increase the currently sluggish rate of job growth.
Republicans in Congress — after refusing to support of American Recovery and Reinvestment Act or any of the myriad job creation bills brought before Congress in the last few months — have criticized the Fed’s move, with spokesman for both incoming House Budget Committee Chairman Paul Ryan (R-WI) and incoming Speaker of the House John Boehner (R-OH) telling Politico that the Fed’s plan is uncalled for.
Rep. Mike Pence (R-IN) is so displeased, in fact, that he plans to introduce legislation today that would entirely remove the Fed’s mandate to ensure full employment:
Rep. Mike Pence of Indiana, a top House Republican, said he plans to introduce legislation Tuesday to end the Federal Reserve’s dual mandate, which requires the central bank to balance both employment and inflation concerns in its monetary policy…“The Fed’s dual mandate policy has failed,” Pence said in a statement. “For a record 18th straight month the nation’s unemployment rate is at or above 9.4 percent. It’s time for the Fed to be solely focused on price stability and not the recently announced QE2 which will monetize our debt and trigger inflation.”
Pence is joined in his push by Sen. Bob Corker (R-TN), who released a statement today saying, “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.”
This crystallizes quite well the Republicans’ set of priorities — as they’re pushing to extend tax cuts for the wealthiest Americans, they’re criticizing the last step available for alleviating wider economic suffering. As economist Mark Thoma summed up, “Republicans oppose fiscal policy — including things such as extending unemployment compensation and job creation initiatives to help to overcome severe conditions (though tax cuts for the wealthy are okay) — and they oppose monetary policy that tries to lower the unemployment rate. So, in essence, they oppose doing anything to help the unemployed during a recession.”
At the same time, the GOP’s concern about inflation is quite overblown, as there is no sign of inflation at the moment. As New York Federal Reserve President Bob Dudley said yesterday, “People do not understand clearly” that “we can have an enlarged balance sheet and not have a long-term inflation problem.”