Republican Party struggles to find unified voice on Fed criticism

Republicans are concerned about the Federal Reserve, but
have yet to nail down a cohesive message on what, if anything, should be done
with the central bank.

Two weeks after the Fed announced it would begin buying up
$600 billion of long-term Treasury bonds in an effort to stimulate job growth,
key GOP lawmakers have aired their worries about the action, warning it could
devalue the dollar and lead to inflation.

{mosads}But beyond general concern, Republicans have not unified
around any specific approach.

Some Republicans want to change the Fed’s mandate to focus
solely on inflation and not maintaining maximum employment. Others worry the
independence of the central bank is at risk because of the increased political
debate centering around its actions, which has been driven in part by groups on
the left and the right.

“This is not a particularly good time for legislators to be
suggesting changes in the Fed’s approach,” said one monetary policy expert at a
conservative think tank. “Everyone thinks they can suddenly become a monetary
policy expert.”

Financial markets and business groups are leery of the
criticism from Capitol Hill.

U.S. Chamber of Commerce President Tom Donohue this week
expressed hope for the success of the Fed’s efforts, and warned: “We must
maintain the independence of the Fed and be very careful not to louse that up
on Capitol Hill.”

Some have speculated that political pressure could cause the
Fed to shut down its second round of quantitative easing (QE2), the name given
for the asset-purchasing by the Fed that is supposed to spur investments in the
economy.

But Federal Reserve Chairman Ben Bernanke on Friday defended
the purchasing decision, saying the Fed “seeks to support the economic
recovery, promote a faster pace of job creation, and reduce the risk of a
further decline in inflation that would prove damaging to the recovery.”

The pressure on the Fed from the right in part reflects
grass roots Tea Party groups that helped the GOP take over the House and close
the gap in the Senate. The Tea Party movement has long been suspicious of the
Federal Reserve, and the addition of Tea Party-supported candidates in Congress
was expected to increase scrutiny of the central bank.

“Republican politicians for the most part know that touching
the Fed is stupid,” said Joseph Gagnon, a senior fellow at the Peter G.
Petersen Institute for International Finance. “But they want to appear
responsive to that vocal minority, because those people are usually
Republicans.”

In that effort, lawmakers have yet to center around a
consistent message.

On Tuesday, Sen. Bob Corker (R-Tenn.) and Rep. Mike Pence
(R-Ind.) announced they were introducing legislation that would repeal the dual
mandate of the Fed that requires it to pursue policies that both maximize
employment and minimize inflation. Instead, the central bank should focus
exclusively on keeping inflation down, they said.

But even Corker and Pence disagreed on how aggressively the
Fed should be tacked.

Pence came out swinging, saying when the Fed “unilaterally”
announced its new spending, which he said was “at odds with the goals of the
American people” and after a “historic rejection of American liberalism and the
borrowing and the spending and the bailout agenda of the recent past.”

“Printing money is no substitute for sound fiscal policy,”
he added.

Corker opted a much more restrained tone, saying he merely
wanted to provide clarity to the Fed’s mission and maintained that, while
concerned about QE2, the legislation was not in response to it.

“None of us really will know, until we look in the rearview
mirror [after] these policies have played themselves out as to whether these
were good or bad policies,” he said of the Fed’s most recent actions.

He even opened his remarks by noting that he and Pence do
not have the same outlook on the matter. “We end up in the same place, but
coming from different perspectives,” he said.

Republican leaders have taken a cautious approach to the
Fed.

Incoming Speaker John Boehner (R-Ohio), Senate Republican
Leader Mitch McConnell (R-Ky.) Senate GOP Whip Jon Kyl (R-Ariz.) and House
Republican Whip Eric Cantor (R-Va.) wrote to Bernanke on Wednesday to air their
“deep concerns” about the Fed’s QE2 decision.

While the four leaders said the Fed’s actions created
“significant uncertainty” and did not help restore confidence in the
U.S. economy, they opened the letter by saying that the Fed “must be free and
independent from political pressures.”

They also said the Fed “should be open to receiving input
and data from a wide range of sources.”

The conservative monetary policy expert said the mixed
messages are in large part due to the complexity of the Fed’s actions. Even
lawmakers like Corker who come from a business background and sit on the Senate
panel with jurisdiction over the Fed may not be experts on monetary policy.

“Almost everyone commenting on the subject doesn’t have a
clue what QE2 is,” he said, adding that the political response to the Fed’s
efforts has been “all over the map” for Democrats and Republicans alike.