Federal Reserve Chairman Ben Bernanke, center, received a letter from… (Shawn Thew / EPA )
The Federal Reserve may signal another round of stimulus Wednesday, which has already been condemned by Republicans in a rare move to further politicize the nation’s central bank.
The Federal Open Markets Committee is expected to announce it will replace about $1.6 trillion of short-term bonds with long-term ones, a form of quantitative easing designed to stimulate the economy. The Fed has already had two such rounds.
Top congressional Republicans, however, question whether the previous rounds have done any good and whether a new move would be of economic value. In a letter this week to Fed Chairman Ben Bernanke, Speaker John Boehner of Ohio, House Majority Leader Eric Cantor of Virginia and the top Republicans in the Senate, Mitch McConnell of Kentucky and Jon Kyl of Arizona, urged that the Fed stay away from any stimulus.
“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,” the quartet wrote.
“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.” They argued, later stating: “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,” they said.
While the argument sounds economic, the context is clearly political. Republicans are fighting with the Obama administration over stimulus spending designed to help invigorate the already hard-pressed economy.
But the Fed is a potent symbol for conservative Republicans because by definition it is an arm of a strong central government. GOP presidential hopeful Rick Perry, the governor of Texas, recently accused Bernanke of committing a “treasonous” act if the Fed has another round of quantitative easing. Other candidates, including Texas Rep. Ron Paul, have long questioned the Fed’s action and its political implications.
In their letter, the four leaders seem to be speaking for the wing of their party that has growing questions about the Fed’s role. “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,” they wrote.
The proof of the political nature of the battle comes from New York’s Sen. Charles Schumer, a Democrat, who urged the Fed to ignore the Republicans, calling their letter “a heavy-handed attempt to meddle in the Fed’s independent stewardship of monetary policy” and said it should be “ignored by Chairman Bernanke and the Fed’s policy makers.”