GOP Leaders Urge Fed Not to Intervene in Economy

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Top Republican congressional leaders, in a rare effort to directly influence Federal Reserve policy, expressed reservations about the central bank taking additional steps to spur the recovery, saying further action could harm the economy.

House Speaker John Boehner (R., Ohio), Senate Minority Leader Mitch McConnell (R., Ky.) and other GOP leaders, in a letter Monday to Fed Chairman Ben Bernanke, urged Fed officials to "resist further extraordinary intervention in the U.S. economy."

They said Fed officials should avoid further action, "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 letter came before Fed officials began a crucial two-day policy meeting Tuesday at which they are debating new ways to boost hiring and economic growth. They plan to announce their decision Wednesday.

Among the options on the table are shifting the composition of the Fed's portfolio of securities so it holds more long-term debt, which could lower long-term interest rates and encourage more borrowing, investment and spending. They could also try to encourage lending by lowering the 0.25% interest rate paid to private banks that hold reserves at the central bank.

The outcome of the meeting is uncertain given the sharply different views held within the central bank. Several Fed policy makers argue that more action is needed at a time when unemployment is 9.1% and growth tepid, but they face stiff opposition from others.

A Fed spokeswoman said the central bank received the letter Tuesday, and declined to comment further.

The letter also was signed by the No. 2 Republicans in each chamber, House Majority Leader Eric Cantor of Virginia and Senate Minority Whip. Jon Kyl of Arizona.

The four lawmakers wrote that it wasn't clear the Fed's earlier attempts to support the economy through large purchases of government bonds, called quantitative easing, had "facilitated economic growth or reduced the unemployment rate." They said those efforts had likely increased economic uncertainty.

They said any further efforts by the Fed could "exacerbate current problems or further harm the U.S. economy."

The lawmakers' comments follow sharp criticism of Mr. Bernanke and the Fed's policies by several Republican presidential candidates. Mitt Romney and Newt Gingrich both took verbal swings at the Fed chief at a GOP debate earlier this month, piling on to similar remarks made elsewhere by Texas Gov. Rick Perry, Minnesota Rep. Michele Bachmann, and Texas Rep. Ron Paul.

Mr. Bernanke hasn't responded to the swipes, and Fed officials say they are not swayed by politics. The central bank was created as an independent government agency to insulate policy makers from short-term political pressures, so they could try to make decisions in the best long-term interests of the economy.

Mr. Bernanke, a Republican, was first appointed to be Fed chairman by former President George W. Bush, also a Republican, and was later reappointed by President Barack Obama, a Democrat.

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Full text of the letter:

Dear Chairman Bernanke,

It is our understanding that the Board Members of the Federal Reserve will meet later this week to consider additional monetary stimulus proposals. We write to express our reservations about any such measures. 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.

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. To the contrary, there has been significant concern expressed by Federal Reserve Board Members, academics, business leaders, Members of Congress and the public. Although the goal of quantitative easing was, in part, to stabilize the price level against deflationary fears, the Federal Reserve’s actions have likely led to more fluctuations and uncertainty in our already weak economy.

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.

Ultimately, the American economy is driven by the confidence of consumers and investors and the innovations of its workers. 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.

We respectfully request that a copy of this letter be shared with each Member of the Board.

Sincerely,

Sen. Mitch McConnell, Rep. John Boehner, Sen. Jon Kyl, Rep. Eric Cantor

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