Congressional Leaders In GOP Attempt To Influence Monetary Policy

This post provides commentary on the decision by GOP leaders in the House and Senate to deter the Fed from another round of quantitative easing. The Fed is required by law to maintain price stability and employment stability. The Fed has also been organized to insulate it from politicians who often place the interests of their party above those of the country. Politicians have generally avoided interference in the operations of the Fed in the conduct of monetary policy. This action taken by GOP leadership in Congress is highly unusual, and it raises the risk that the Fed's ability to conduct monetary policy will be guided by political interests. It would certainly raise questions about US monetary policy that would affect the Fed's reputation within the community of central banks that cooperate on international monetary policy issues.

This letter from GOP leadership is also harmful because the Fed has also been a target in its political campaigns. For example, Rick Perry has a accused the Fed of treason, and Ron Paul would like to abolish the Fed. This feeds into the conspiracy theories that are conspicuous among far right political groups like the Tea Party. The GOP has also been accused of interfering with government actions that might improve the economy prior to the 2012 elections. It has been using budget deficits and the fear of rising inflation to limit fiscal policy as well as monetary policy.