Federal Reserve draws legislative fire from both sides of the aisle

By Peter Schroeder - 05/06/12 06:20 PM ET

What do Reps. Kevin Brady (R-Texas), Barney Frank (D-Mass.), Dennis Kucinich (D-Ohio) and Ron Paul (R-Texas) have in common?

All are not happy with the current state of the Federal Reserve.

In the 112th Congress, areas of bipartisan interest have been hard to come by. But overhauling the nation’s central bank looks to be a subject where politicians of all different stripes have developed an interest — if not necessarily an agreement on how it should be done.

Criticism of the Fed has struck a rare bipartisan tone since the financial crisis, as it has become a target of both Tea Party groups and the Occupy Wall Street movement.

Following that populist anger, bills to alter the Fed are coming from both sides of the aisle.

On Tuesday, Paul will host a hearing of his House Financial Services subcommittee, where lawmakers will discuss a range of legislative proposals to tweak, overhaul, or outright eliminate the Fed.

Paul has built his national profile as a dark horse presidential candidate in large part on his devoted Fed-bashing. Following the Fed’s extreme actions during the financial crisis, where it extended huge amounts of loans to Wall Street firms in its bid to keep the financial system afloat, skepticism about the economic institution has been on the rise.

“More and more people are beginning to understand just how destructive the Federal Reserve's monetary policy has been. I hope that this hearing will kick start a serious discussion on the need to rein in the Fed,” said Paul, who chairs the domestic monetary policy subcommittee. “100 years is far too long for Congress to have taken a hands-off approach.”

Paul has been critical of the Fed for years, and has introduced legislation this year, as he has for more than a decade, to abolish it. But a growing number of lawmakers in both parties are casting a skeptical eye on the central bank, believing there is a better way to handle the nation’s monetary policy.

Along with Paul’s bill to eliminate the Fed, two other Republican measures to be discussed are being offered by Reps. Brady and Mike Pence (Ind.).

Pence’s bill, which he also introduced in the last Congress, would cut the Fed’s mission in half. Since 1977, Congress has handed the Fed a dual mandate of maximizing employment while controlling inflation. Recent steps taken by the Fed in pursuit of the former goal, like near-zero interest rates and two rounds of “quantitative easing,” have earned recriminations from Republicans, who worry the moves could be encouraging inflation.

Pence’s bill is in response to that concern, and would reduce the Fed’s goals to simply keeping inflation under control.

Brady’s bill would similarly trim the mandate, but also give the Fed a top-to-bottom makeover. That comprehensive bill would alter the power structure of the Fed, giving more of a say to the presidents of regional Federal Reserve banks across the country, as opposed to the Fed governors based in Washington.

Second-guessing the Fed’s structure is not just a Republican game these days. Of the six bills on the agenda Tuesday, half come from Democratic lawmakers, who have their own issues with the central bank.

Democrats, however, are looking to pull the Fed in the opposite direction.

One bill, offered by Frank, runs directly counter to Brady’s bill. Frank has been largely positive about the Fed’s efforts since the crisis, but contends that the regional Fed presidents reflect the interests of the banking industry and exert too much influence on monetary policy. Instead, his bill would have policy set exclusively by individuals picked by the president and approved by lawmakers.

Another bill offered by Rep. Marcy Kaptur (D-Ohio) pursues similar goals of limiting industry reach. Her measure would cut in half the terms of Fed governors from 14 to seven years, and double the amount of time, from two to four years, a member of the Fed must wait after leaving before taking a job at a bank. It also would prevent long-running vacancies at the top of the Fed by requiring Congressional leaders to send a list of candidates to the president if spots remain open for four months, and requiring the president to nominate someone one month after that.

Kucinich, who lost his reelection bid to Kaptur in a newly drawn district, is offering yet another take on fixing the Fed. His measure would house the Fed within the Treasury Department, which would then set monetary policy in a way that keeps the dollar stable.

For its part, the Fed has kept its head down amid the influx of critiques from both sides of the aisle. With its mandate established by Congress, Fed officials are quick to say they will work to achieve whatever goals lawmakers deem necessary. However, the Fed has addressed the knock that it is too opaque an institution with a recent run of transparency initiatives.

Fed Chairman Ben Bernanke has begun holding regular press conferences to explain the Fed’s policy moves, the Fed is now making public economic projections from individual members, and Bernanke recently spent four lectures at George Washington University explaining the Fed’s role, including what it actually did during the financial meltdown.