GOP’s Pence Calls for Fed to Drop Focus on Employment

By Sudeep Reddy

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.
Pence, a potential 2012 presidential candidate, is one of several GOP politicians in recent weeks to attack the Fed over its recent decision to buy government bonds to boost the economy, warning that the move — often called Quantitative Easing 2 — could spur significant inflation. On Monday, he called for striking the dual mandate to force the Fed to focus only on price stability. The Fed today, under a 1977 law, also must pursue maximum sustainable employment — generally view as an unemployment rate of 5% to 6%.
“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.”
The legislation is unlikely to become law, either this year or in the next Congress. Democrats strongly support the Fed’s focus on employment, and few Republicans have voiced the inflation worries that are gaining traction among the GOP’s tea party contingent. But Pence’s move is likely to further boost attention on the Fed and could draw other potential 2012 candidates into the inflation debate.
To support the economy after the financial crisis, the Fed has kept its target for overnight interest rates near zero since December 2008. It also bought $1.7 trillion in U.S. Treasury debt and mortgage securities to drive down long-term interest rates and spur more borrowing and spending. But it’s falling short on both sides of its mandate. Unemployment remains too high, at 9.6%, and inflation is running below the Fed’s target of 1.7% to 2%. As a result, the central bank’s policy committee on Nov. 3 voted 10-1 to resume the bond-buying and purchase $600 billion in Treasurys over the next eight months.
Supporters of the move maintain it should help U.S. growth modestly by lowering borrowing costs for consumers and businesses, pushing investors into riskier assets — raising stock prices and other asset values as a result — and making U.S. exports more competitive overseas.
But the decision has drawn criticism from some officials inside the Fed — who fear it could spur too much inflation and financial instability down the road — and from policymakers around the world who say the Fed’s move in creating new money, which pushes the dollar down on world markets, threatens their own economies.
Meanwhile, Republican-leaning economists and strategists, coordinating with GOP politicians, launched a campaign this week to boost pressure on the Fed and push the issue into the 2012 presidential campaign