GOP’s Pence: The Fed Should Drop Its Dual Mandate

This says a lot about how much Republicans care about the unemployed:

GOP’s Pence Calls for Fed to Drop Focus on Employment, by Sudeep Reddy: Rep. Mike Pence of Indiana, a top House Republican, said he plans to introduce legislation Tuesday to end the Federal Reserve’s dual mandate, which requires the central bank to balance both employment and inflation concerns in its monetary policy. … On Monday, he called for striking the dual mandate to force the Fed to focus only on price stability. The Fed today, under a 1977 law, also must pursue maximum sustainable employment… “The Fed’s dual mandate policy has failed,” Pence said in a statement. “For a record 18th straight month the nation’s unemployment rate is at or above 9.4 percent. It’s time for the Fed to be solely focused on price stability and not the recently announced QE2 which will monetize our debt and trigger inflation.”

The unemployment rate would be even higher if the Fed had not acted but, in any case, a single mandate wouldn’t alter the Fed’s current course of action. If the Fed is worried about disinflation/deflation, as it should be, then QEII is what is required for price stability. Dropping the dual mandate won’t change that (and the debt will be “unmonetized” when conditions return to normal and the Fed begins to remove reserves from the system to avoid inflation, so the debt monetization argument doesn’t hold unless you believe the Fed will abandon its long-run inflation target — something it has made very clear it has no intention of doing).

Republicans oppose fiscal policy — including things such as extending unemployment compensation and job creation initiatives to help to overcome severe conditions (though tax cuts for the wealthy are okay) — and they oppose monetary policy that tries to lower the unemployment rate. So, in essence, they oppose doing anything to help the unemployed during a recession.

Welcome to the “you’re on your ownership society.”

About Mark Thoma 243 Articles

Affiliation: University of Oregon

Mark Thoma is a member of the Economics Department at the University of Oregon. He joined the UO faculty in 1987 and served as head of the Economics Department for five years. His research examines the effects that changes in monetary policy have on inflation, output, unemployment, interest rates and other macroeconomic variables with a focus on asymmetries in the response of these variables to policy changes, and on changes in the relationship between policy and the economy over time. He has also conducted research in other areas such as the relationship between the political party in power, and macroeconomic outcomes and using macroeconomic tools to predict transportation flows. He received his doctorate from Washington State University.

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