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Change to Fed’s role urged

‘Dual mandate’ muddies its mission, Stutzman says

Rep. Marlin Stutzman, R-3rd, doesn’t think the Federal Reserve should act as an employment agency.

Stutzman has introduced legislation that would eliminate the Fed’s “dual mandate” to promote stable prices and full employment. Congress imposed the mandate in 1977.

Stutzman, a member of the House Financial Services Committee, said in a statement that the Fed recently has tried to encourage job growth “by firing up the printing presses” and issuing more money, which Stutzman fears will devalue the U.S. dollar.

In an effort to stimulate the economy, the Fed is buying $85 billion a month in Treasury bonds and mortgage-backed securities. Also, the central bank said in December it will keep its main interest rate near zero until the jobless rate falls to 6.5 percent or less – a figure last reached in October 2008.

Stutzman’s bill – named Focusing the Fed on the Currency of the United States, or FFOCUS – would require the Fed to concentrate on controlling inflation through monetary policy.

Sen. Bob Corker, R-Tenn., announced Monday he had introduced identical legislation. Rep. Kevin Brady, R-Texas, offered the same bill last March, but it failed to advance out of a House Financial Services subcommittee.

IPFW economist John Kessler said Tuesday the dual mandate gives the Fed discretionary power to decide whether inflation or unemployment is more important at a given time – an authority that is opposed by some lawmakers and economists.

But the mandate also makes the Fed’s job more difficult, Kessler said.

“It’s like trying to hit two moving targets with one arrow. The only arrow you have is controlling the money supply and manipulating the interest rates,” he said.

Enforcing a single mandate might be tricky. Skeptics contend the Fed’s decisions and policies will still take employment conditions into account regardless of what the law states.

“If they are told to focus on one or the other, how do you hold them accountable to that?” Kessler wondered. “How do you make sure they’re not worried about employment?”

He said New Zealand law allows for central bank leaders to be removed if the nation fails to meet inflation targets.

bfrancisco@jg.net

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