Tags: Brady | Limit | Role | Fed

Rep. Kevin Brady: Limit the Role of the Fed

By    |   Thursday, 22 March 2012 02:17 PM

The Federal Reserve has done enough to help the economy recover, and it's time for the U.S. central bank to play less of a role in economic affairs — permanently, says Representative Kevin Brady, the top Republican on the Joint Economic Committee.

The Federal Reserve operates under a dual mandate: to optimize employment rates while maintaining price stability.

It's time for the employment mandate to go.

Story continues below video.

"Our focus is on ensuring America has the strongest economy in the world for the next 100 years and to do that, we need to get to the role of the Federal Reserve and we need to get it right," the Texas lawmaker told Newsmax.TV in an exclusive interview.

"And I am convinced that a single focus on preserving the purchasing power of the dollar, in effect, guarding against inflation or deflation, actually creates a solid foundation for the greatest job growth and the strongest economy that America can have," he said.

Brady has introduced the "Sound Dollar Act," which would return the Federal Reserve to its original mandate of controlling inflation rates while making sure the dollar remains safe.

Looking after both unemployment and inflation rates often leads to a conflict of interest and weakens the dollar.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

The bill wouldn't strip the Federal Reserve of its autonomy.

"I want them to stay independent, but I want Congress to give them a clear focus and them hold them accountable for those results," Brady says.

"If we do that right, I'm convinced the Fed could actually again help lay that foundation for a strong economy in the future."

The Federal Reserve has taken heat for its exceptionally loose monetary policies since the downturn.

The monetary authority has cut interest rates to near zero and says they could stay that way possibly through the end of 2014.

The Fed has also bought trillions of dollars in assets from banks with the aim of juicing the economy, a policy known as quantitative easing.

The Fed, under Chairman Ben Bernanke, has already launched two rounds of quantitative easing, known widely as QE1 and QE2.

QE1 saw the Fed buy $1.7 trillion in assets from banks, mainly mortgage securities, while QE2 saw the central bank snap up $600 billion of Treasury bonds, the latter of which wrapped up on June 30, 2011.

Such moves are used to stimulate the economy when interest-rate cuts don't work, and as a side effect, inflationary pressures could emerge down the road.

The dollar weakens as well.

The Fed claims such tools were needed to adhere to its dual mandate of balancing stable unemployment and inflation rates, although critics say such policies have flooded the economy with so much liquidity that inflation is unavoidable.

Don't blame Bernanke, Brady says.

He's just doing his job, while the White House and Congress have done little to cut spending and trim deficits, which is what the economy really needs.

"Monetary policy can't spur employment in America," Brady says, adding rather than holding Fed officials accountable for what they can't control, "let's make them accountable for what they can, which is guarding against inflation."

"I think because of the failure, in my view, of this president and of this Congress to deal with the fiscal issues such as a competitive tax code, overspending, getting our financial house in order and the regulatory side, the Fed has tried to do too much and continues to try to do too much to make up for what I think are failed policies here in Washington," Brady says.

"This bill, the Sound Dollar Act, is all about looking forward about the role the Fed should play."

Until then, the country should brace itself for inflation.

While the consumer price index rose 0.4 percent in February from January, a slightly high but still comfortable rate for many thanks to rising fuel prices, inflation rates shoot up higher without warning, especially in wake of the vast amounts of liquidity the Fed has injected into the system as of now.

"You can't pump that much money into this economy without prices taking off and as you know the worry about inflation is that you don't see it coming, and once it's in the pipeline it's very hard to deal with it," Brady says.

"It's the cruelest tax there is on families and on businesses and destroys jobs."

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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