The Federal Reserve’s decision to pump $600 billion into the economy has further politicized the central bank and brought it into conflict with resurgent House Republicans.
The attacks and counter-attacks have further complicated life for Ben Bernanke, the Federal Reserve chairman who narrowly won a second term earlier this year after a tough Senate debate.
Republicans were upset by Bernanke’s support for the Troubled Asset Relief Program (TARP) and unnerved by the unprecedented steps taken by the bank during the financial crisis.
“The relationship has deteriorated slowly and over time,” said Brian Gardner, a former House Republican aide who is now an analyst focusing on financial services for Keefe Bruyette & Woods.
Fed critics with new powers are expected to test Bernanke’s mettle in coming months.
Rep. Ron Paul (R-Texas), a longtime Fed critic who has called for auditing the central bank’s books, is in line to take over the Financial Services subcommittee on domestic monetary policy and technology, which has jurisdiction over the Fed.
“I will approach that committee like no one has ever approached it because we’re living in times like no one has ever seen,” Paul vowed in a recent interview with CNBC.
He criticized Bernanke, saying the chairman would “create money until he gets economic growth, and there’s no evidence creating money creates economic growth.”
House Republicans have invited Federal Reserve Bank of Kansas City President Thomas Hoenig, the only voting official to dissent from the Bernanke-backed decision to buy more Treasuries, to speak to their conference on Dec. 3.
It’s unclear whether GOP leader John Boehner (Ohio), the incoming Speaker for the next Congress, will hold any discussions with Bernanke. Boehner’s office did not respond to questions for this story.
Rep. Paul Ryan (R-Wis.), the incoming Budget Committee Chairman, called the Fed’s recent decision to buy $600 billion in long-term Treasuries to boost employment a “mistake” that will lead to higher inflation.
Rep. Cathy McMorris Rodgers (R-Wash.), a member of the GOP leadership, has compared the Fed’s action to the 2009 economic stimulus package that was unanimously opposed by the House GOP conference. Sarah Palin, a possible GOP presidential candidate in 2012 and a former governor of Alaska, has also blasted the move.
President Obama and key congressional Democrats have offered defenses for the Fed’s decision.
“We applaud the Fed’s action and are especially encouraged by its clear signal that it stands ready to do more,” House Financial Services Chairman Barney Frank (D-Mass.) and Ways and Means Chairman Sandy Levin (D-Mich.) said in a joint statement this week.
Gardner points to criticism of how the Fed and Obama administration sold or failed to sell TARP as the root of the GOP-Bernanke differences.
While most of the $700 billion program has been paid back, and it has been credited with helping the nation survive the financial crisis, it remains unpopular with voters who saw it as a bailout of wealthy Wall Street interests at a time when small businesses and home owners received little help from the government.
Republicans also saw steps the Fed took on credit card and mortgage rates as being in line with Democratic policy.
Now Republicans are taking aim at the Fed’s new quantitative easing policy, which will see the Fed’s money-printing presses go into overdrive to try to speed up an economic recovery.
Gardner predicts Bernanke and the Fed will continue to have a tough time and run into conflict with the GOP as long as the economy is troubled.
“In some ways, I don’t think it’s a relationship that’s easily managed,” he said.
If the economy approves and the Fed’s actions are seen as helpful, relations between House Republicans and Bernanke will undoubtedly improve. If the recovery is slow and unemployment remains high, tension will only intensify, he said.