Empowered GOP may have fun kicking Bernanke around
The newly empowered U.S. Republican Party may have fun kicking Ben Bernanke, the Federal Reserve chairman, around. Whether or not the party ends with control of the Senate, it will find budget cutting difficult and often unpopular. However as several regional Fed bank presidents — along with many Republicans — support tighter money it’s easy to see a GOP Congress making sport of harassing the central bank chairman.
With the White House still Democratic for at least the next two years, a new Republican majority in the House of Representatives may have difficulty scoring concrete achievements on the economic front.
The party generally agrees on tightening fiscal policy, but increasing taxes may be economically counterproductive and would certainly infuriate the Republican voting base. Cutting spending, conversely, is likely to be generally opposed by President Barack Obama, who has the power of veto over any appropriations bills that do not meet his objectives.
Monetary policy is a different matter. Bernanke is not up for re-nomination until January 2014, though 30 Senators voted against his second term in January. However, he is required under the Full Employment Act of 1978 to make twice-yearly appearances before Congress.
In addition, the Fed reports to Congress on a number of matters; there have been seven such reports in the last year, for example. In addition, both chambers of Congress have subpoena power, so there are ample opportunities for harassment of the Fed if Congress wishes to exercise them.
Moreover, within the Republican caucus, there is a small but increasingly vocal minority that wishes to abolish the Fed, a much larger faction that wishes for either a fixed monetary peg such as a gold standard or for the Fed to be “Volckerized” by statute and prevented from excessive monetary expansion.
Other Republicans simply believe, as do regional Fed presidents Thomas Hoenig, Charles Plosser and Jeffrey Lacker, that interest rates are currently too low and should be raised above the inflation rate. Since a high proportion of Republican voters share these concerns, a growing campaign by Congress to end Bernanke’s easy-money policy seems likely.
Whether this blood sport gets under Bernanke’s skin sufficiently to change the course of monetary policy will be the question for markets in years to come.