GOP leaders pressure Fed to avoid further stimulus efforts

Congressional Republicans have taken pressure on the Federal Reserve to new heights, calling on the central bank to avoid any further efforts to stimulate the economy.

Top GOP leaders from both chambers sent a letter to Federal Reserve Chairman Ben Bernanke on Monday, highlighting “serious concerns” about further intervention from the Fed, and arguing that previous efforts have done more harm than good.

The letter was sent one day before the Fed embarked on a two-day meeting in which it would weigh additional attempts to boost the economy.

The letter, signed by House Speaker John Boehner (R-Ohio), House Majority Leader Eric Cantor (R-Va.), Senate Minority Leader Mitch McConnell (R-Ky.) and Senate Minority Whip Jon Kyl (R-Ariz.), represents one of the strongest political challenges to the Fed in recent memory, and strong proof of the central role the Fed has now taken in the nation’s economy.

{mosads}The Fed prides itself on its political independence, and politicians from both parties typically have taken great pains to not be seen as challenging that independence. But Monday’s letter runs counter to that, as leading GOP lawmakers are now explicitly calling on the Fed to make or avoid certain policy moves, or at least justify their choices.

“The American people have reason to be skeptical of the Federal Reserve vastly increasing its role in the economy if measurable outcomes cannot be demonstrated,” the lawmakers wrote.

On Wednesday, the Federal Open Market Committee (FOMC) will issue its latest statement and announce its latest policy moves. Financial markets are anticipating that the Fed will use the opportunity to take additional steps, as Bernanke has highlighted such options in the past in light of the slowing economic recovery.

But Bernanke has also said that monetary policy has its limits, and that Congress and the White House need to play their part in boosting the economy.

Republicans have been harshly critical of the recent novel moves made by the central bank, in particular its efforts at “quantitative easing.” The Fed has bought up hundreds of billions of dollars of bonds, in an effort to drive down interest rates and encourage economic activity. The authors of the letter argued that the second such effort, which wrapped up in June, did little to boost economic growth or bring down the unemployment rate.

“The Federal Reserve’s actions have likely led to more fluctuations and uncertainty in our already weak economy,” they wrote.

The pressure from GOP lawmakers could complicate what is already a precarious position for the Fed. When the FOMC announced at the close of its August meeting that it would be keeping interest rates near zero for at least two years, three of the 10 current FOMC members dissented from the statement, the highest level of division in nearly two decades.