Congress should reassess the Fed’s dual mandate and focus exclusively on inflation

Inflation is a thief and despite 14 months of arguing by the Biden administration that today’s inflation is “transitory,” it has gone up every month of his presidency and is likely to persist through 2023. And, inflation certainly isn’t a “high-class” problem either, as President Biden’s chief of staff suggests. From groceries and gasoline to heating and cooling our homes, everyone is paying more. A dollar saved is a dollar lost in the Biden economy. 

While we welcomed the Federal Reserve’s (the Fed’s) recent action to support a 25 basis-point increase in short-term interest rates, in our view, the Open Market Committee should have been more aggressive in the form of a 50 basis-point increase as recommended by St. Louis Fed President James Bullard. That said, as many of us urged, the Fed should have started this process well over year ago. 

If we knew in March 2020 what we know today, we would have more carefully targeted COVID-19 spending and spent far less. In addition to the politically difficult choices of returning to pre-pandemic spending and agreeing on the best path forward to eliminate deficit spending, Congress needs to push back against academic fringe thinking like Modern Monetary Theory (MMT) — a dangerous theory gaining traction adhering to the belief that the federal government can create a limitless supply of money with no consequences. House Budget Committee Chairman John Yarmuth (D-Ky.) said, “We absolutely cannot go bankrupt because we have the power to create as much money as we need to spend….” Democrats arguing that there are no limits to spending or public policy challenges like climate change that can be solved by the central bank will further compound our economic headwinds.  

Biden inflation is imbedding itself in our economy, not just through costs but via the labor shortage seen across all industries. Wages cannot compete with 7.9 percent year over year inflation as measured by the latest Consumer Price Index (CPI). In fact, real wages have decreased under President Biden in eight of his first 12 full months in office. At any given level of unemployment there is a greater degree of inflationary pressure. Producer prices reaching an annual rate of 10 percent gave us a preview of coming trends.  

The possible parallels between now and the inflation crisis of the 1970s are concerning. Fed Chairman Jay Powell is facing what his predecessor, Arthur Burns, in 1979, called the “Anguish of Central Banking.” Sustained high inflation and higher inflationary expectations for the foreseeable future coupled with a commodity shock – oil again – have reared their ugly head again.  

As prices rise, Congress should reassess the central bank’s dual mandate and consider a single mandate focused on the issue of price stability to contain inflation and keep prices in check for Americans at the pump, in the grocery store, and when they pull out their wallets.  

The Fed’s statutory mandate dates to 1977 when Congress, in response to the dysfunctional fiscal and monetary policies resulting in high inflation, high unemployment rates, and meager economic growth, enacted the Fed’s current mandate to promote “maximum employment, stable prices, and moderate long-term interest rates.” After four decades we should learn from the past and return to a single focus.  

As former Chairman Burns warned reflecting on his time during the 1970s, “Much of the expanding range of government spending was prompted by the commitment to full employment. Fear of immediate unemployment — rather than fear of current or eventual inflation, thus came to dominate economic policymaking.” 

This line of thinking has dominated the Fed for too long and it’s time to focus its efforts on keeping prices in check. That’s why we have introduced the Price Stability Act, to end the Fed’s dual mandate and ensure the central bank concentrate exclusively on containing inflation. A single mandate would be in line with the European Central Bank, Bank of Japan, and Bank of Canada, among others.

Let’s encourage the Fed to revive its core mission and steer clear of economic policy fads and calls for an expanded mission. Americans work hard to fund their savings accounts and we cannot allow the government to discount the hard work that went into each earned dollar. Interest rates on savings and retirement accounts do not even come close to matching the inflation numbers we continue to see, making these contributions and sacrifices practically null and void. This bill works to protect the purchasing power of the dollar and we are proud to stand up for the economic interests of the American people.    

Hill represents the 2nd District of Arkansas and is ranking member of the Housing, Community Development and Insurance Subcommittee. Donalds represents the 19th District of Florida and is a member of the Budget Committee.