A new task force in the Republican-controlled U.S. House of Representatives has begun an examination of the Federal Reserve's role and goals, with Republicans raising questions about its track record on controlling inflation, and Democrats keeping a close eye on the impact of President Donald Trump's freshly imposed tariffs and other economic policies.
The Monetary Policy, Treasury Market Resilience, and Economic Prosperity Task Force's inaugural hearing drew support from the committee's top leadership, with both Chairman French Hill and the House Financial Services Committee's top Democrat, Representative Maxine Waters, querying witnesses. Each set the tone for their side of the aisle at the hearing, which comes as the Fed itself begins what's expected to be a six-month review of its approach to achieving its congressionally mandated goals of price stability and full employment.
Republican Concerns Over Inflation and Fed's Role
Hill aired concerns over the size of the Fed's balance sheet and questioned the feasibility of the employment mandate, given the many forces that impact the labor market beyond central bank control. This has been a longstanding sticking point for Republicans critical of the Fed's handling of the economy.
In a similar vein, Hill stated that he felt the 2% inflation goal is too high and unnecessarily erodes the public's purchasing power. Other Republicans took up this baton, but also touched on a wide range of other topics including ideas on how to ease regulation.
For example, Republican Andy Barr forcefully advocated for stripping the Fed of its responsibility to fund the Consumer Financial Protection Bureau, which recently was put on ice by the Trump administration, and giving it instead to Congress. Waters, the committee's top Democrat, shook her finger and repeatedly mouthed the word "no" to nearby colleagues in response.
Democratic Concerns Over Tariffs, Inflation, and Fed Independence
Waters for her part called out the rising price of eggs and the potential for Trump's new tariffs to make inflation worse. This was a point that several other Democrats also took up during the hearing.
Representative Juan Vargas from California questioned Trump's executive order asserting control over independent government agencies, which he said could threaten the Fed's independence and thus its effectiveness in fighting inflation. Mike Konczal, former chief economist for the Biden administration's National Economic Council, told the panel that though the order carves out the Fed's monetary policy from White House control, "there's no way to have a strict wall of separation between monetary policy and regulatory policy."
Fed Watchers Waiting on Central Bank Response
Fed watchers are waiting to see how the central bank will interact with and be responsive to this group. No current Fed policymakers appeared at Tuesday's hearing.
The Fed assiduously guards its monetary policy independence, which economists say is critical to a central bank's ability to fight inflation effectively. At the same time Powell readily acknowledges that the central bank is accountable to congressional oversight.
Task Force Composition and Expectations
The 14-member task force, led by Representative Frank Lucas from Oklahoma, features a mix of veteran lawmakers who have spent considerable time on issues related to the Fed. Eight of them have met with Powell at least once since he became chair in 2018.
As the Fed itself begins its six-month review of its approach to achieving its congressionally mandated goals of price stability and full employment, this task force's examination of the Fed's role and goals is timely and significant.
The hearing came as a follow-up to previous concerns raised by Republicans about the Fed's handling of inflation. The Republican-controlled House has been critical of the Fed's efforts to control inflation and has expressed doubts about its ability to achieve price stability.
Conclusion
The Monetary Policy, Treasury Market Resilience, and Economic Prosperity Task Force's examination of the Federal Reserve's role and goals is a significant development in the ongoing debate over the central bank's handling of the economy. As the Fed begins its own review of its approach to achieving its congressionally mandated goals, this task force's findings will likely have far-reaching implications for monetary policy in the United States.
The hearing highlighted the deep divisions between Republicans and Democrats on issues related to the Fed's role and goals. While Republicans expressed concerns about inflation and the Fed's independence, Democrats focused on the potential impact of Trump's tariffs and other economic policies on inflation and the economy as a whole.
As the task force continues its examination of the Federal Reserve's role and goals, it is likely that these divisions will only deepen. However, the hearing also highlighted the importance of congressional oversight in ensuring that the Fed remains accountable to the public and Congress.