By Peter Schroeder and Erik Wasson - 09/13/12 10:00 AM EDT
The increasing likelihood of a new Federal Reserve effort to boost the economy has some Republicans questioning whether the central bank is trying to help President Obama win reelection.
Congressional Republicans, wary of the Fed’s recent efforts to stimulate the recovery, said Wednesday that the its political independence could be jeopardized if officials embark on another round of stimulus so close to Election Day.
“I am shocked, just shocked, that politics are going on in this city!” Rep. Tom McClintock (R-Calif.) said sarcastically.
On Thursday, the Fed’s policy-setting committee will announce its latest decisions regarding the nation’s monetary policy, followed by a press conference by Fed Chairman Ben Bernanke.
With the economic recovery continuing to lag, financial analysts believe the Fed is on the cusp of launching another massive effort to stimulate the economy. Many expect the Fed to unveil a third round of massive bond purchases known as “quantitative easing.”
By buying up billions of dollars worth of bonds, the Fed believes it can spur more economic activity by lowering borrowing costs, despite interest rates that are already near zero. Roughly two-thirds of economists surveyed by Bloomberg believe the Fed will announce “QE3” on Thursday.
Republicans have harshly criticized similar Fed efforts in the past. Last year, GOP leaders in Congress sent a letter to the central bank urging it to stay on the sidelines, warning its policy choices were encouraging damaging inflation.
But Fed officials have held their ground, refusing to rule out further attempts to tackle unemployment and insisting they do not take politics into consideration when weighing their decisions.
While many Republicans have criticized the Fed on economic grounds, an announcement about new stimulus — which could send financial markets soaring in the run-up to the election — is likely to bring charges that the bank has partisan aims.
“They are the ones who always say they want to remain independent. So they should consider, just how independent are they when they come out, only 50 days before the election, with this?” said Rep. Scott Garrett (R-N.J.).
Other GOP lawmakers agreed that action by the Fed could open it to charges of political meddling, even if they stopped short of making those accusations themselves.
“Obviously, we are in that political season, but that’s not my bent,” said Sen. Bob Corker (R-Tenn.), who has been out front in urging the Fed to refrain from further stimulus.
“I hope that the chairman’s going to have the humility and the strength at the same time to say that monetary policy has its limits,” he added.
Rep. Rob Woodall (R-Ga.) said he does not personally think the Fed is being political, but predicted the public will question its motivations if major actions are announced.
Asked if people are going to ascribe political motivations, he said, “Folks are going to interpret it that way.”
If the Fed does opt for further stimulus in the face of vocal opposition, it would be the latest rift in the increasingly tumultuous relationship between the bank and the GOP. Bernanke was a common target on the campaign trail during the GOP primaries. Mitt Romney has similarly urged against further easing and said that if he won the White House, he would not reappoint Bernanke when his term expires in 2014.
Those charges come despite that fact that Bernanke is a Republican and was first appointed by President George W. Bush before being reappointed by Obama.
GOP lawmakers have pushed several measures this Congress to ramp up pressure on the Fed. The House easily cleared a bill that would require all the Fed’s operations, including its monetary policy deliberations, to be subject to audits by the Government Accountability Office (GAO). Roughly half of House Democrats also backed the measure, but its path forward in the Senate is unclear.
Republicans also included language pushing for a full audit of the Fed in platform language released at their presidential convention in Tampa, Fla.
And several key GOP lawmakers, including Rep. Paul Ryan (R-Wis.), chairman of the House Budget Committee and Romney’s running mate, have backed efforts to slash the Fed’s mandate so it only has to focus on controlling inflation. Currently, the central bank’s dual mandate requires it to keep prices stable while maximizing employment, the latter being the driving force behind the Fed’s recent efforts.
“We’ve got to change that,” Rep. Tom Price (R-Ga.) said Wednesday.
But Rep. Kevin Brady (R-Texas), who has authored a sweeping bill that would overhaul the Fed, dismissed any suggestions that politics are at play in the Fed’s moves.
“They’re responding to their views of the economy, regardless of the timing,” he said. “I don’t think it’s political.”
Brady contended that the fact that the Fed seems to be on the cusp of further stimulus as Obama wraps up his first term is more an indictment of the president than anything else.
“Here we are, more than three years after the recession ended, and the Fed is still considering stimulating the economy,” he said. “That’s just a sad comment.”