Lawmakers in tug of war over reforming the Fed

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Rep. Barney Frank (D-Mass.), who joined Brady at the witness table, made the case for his Fed overhaul, which would block regional presidents of Federal Reserve banks from setting policy and replace them with more officials nominated by the president and confirmed by the Senate.

Allowing those presidents, who are selected by member banks, to have a say in the nation's monetary policy is "undemocratic," Frank said.  

"I cannot think of another element in American government where there is formal binding legal power given to representatives of the industry," he said. "To have them setting the policies seems to me to be greatly mistaken."

Brady's bill would pull the Fed in the opposite direction, granting policy-setting votes to all regional presidents, instead of the current arrangement where votes rotate among them. He warned that if all the policy-setting power were given to political appointees it would "politicize" the central bank by concentrating its influence in Washington.

Frank threw his own jab at Brady's bill, and said Republicans were so interested in the measure — including the provision restricting the Fed from focusing on unemployment — they should open it up promptly for public debate.

"Let's have a committee markup, let's bring it out," he said. "Let's debate that one before the election."

Much of the day's debate centered on the Fed's “dual mandate.” Since 1977, the bank has been charged with both controlling inflation and maximizing employment. Republicans contend the Fed would be better off focusing exclusively on price stability.

"The current dual mandate asks the Fed to do something it simply cannot do," said Brady, whose bill would limit the mandate to inflation. 

But Democrats strongly defended the Fed’s dual mission, arguing that the bank should be focused even more on unemployment.

"I would argue that the Fed's pursuit of the dual mandate contributed to avoiding an all-out economic collapse," said Rep. Carolyn Maloney (D-N.Y.).

"Have we really been pursuing both to the degree the statute calls for?" asked Rep. Keith Ellison (D-Minn.). "Has maximum employment gotten the short shrift?"

— This story was updated at 1:52 p.m.