Republicans on Capitol Hill are pushing to end the Federal Reserve‘s dual mandate of price stability and maximum employment and instead limit its remit exclusively to keeping inflation low.
The Price Stability Act, introduced this week by House Financial Services Committee Chairman French Hill (R-AR), would require that Fed officials only consider inflation when making monetary policy decisions.
Rep. Marlin Stutzman (R-IN), one of the bill’s co-sponsors, told the Washington Examiner during an interview that changing the Fed’s mandate would be good for the economy. Notably, over the past several years, the U.S. experienced the worst wave of inflation since the 1970s.
“My belief has always been, as a free-market guy — focus on prices. Supply and demand will fix the other pieces of it in an economy,” said Stutzman, a member of the fiscally conservative Freedom Caucus.
Stutzman pointed out that, while the U.S. has flirted with essentially full employment for some time, inflation has remained stubbornly high. The Fed’s goal is 2% long-run inflation. Inflation has been above that rate since early 2021, even after a Fed rate-hiking cycle.
Hill said that the Fed’s agenda is overly broad and needs to be brought back in line with a focus on price stability.
“For too long, the Federal Reserve has been stretched between competing objectives,” Hill said. “It’s time to return to a clear, singular focus: protecting the wallets of American families by keeping inflation in check. This legislation brings the Fed back to its core responsibility — price stability—and away from an overly broad agenda that weakens its effectiveness.”
Stutzman said that Americans, particularly young Americans, are having a difficult time buying big-ticket items like houses or cars. He blames the current inflation on the “easy money” policies of the Fed.
During the outset of the pandemic, the Fed cut interest rates to near-zero levels in order to shore up the economy and labor market, which was reeling from the short-lived recession brought on by coronavirus lockdowns.
The Fed pursued easy-money policies for about a year after inflation began trending above 2%, and it was then forced to raise rates quickly in an effort to ease price pressures by slowing spending.
“I think if the easy money would have stayed out of it, that would have kept inflation down,” Stutzman said,
As a result of the stubbornly high inflation, the Fed boosted interest rates to their highest level since the turn of the century. Those higher rates have created a double whammy of pain for consumers already reeling from goods inflation because they have made taking out a mortgage, getting loans, or paying off credit card debt much more challenging.
While higher interest rates can push down overall inflation, Stutzman pointed out that they also make it more expensive and challenging to purchase a home, something that is a major concern for the economy.
“First time homebuyers have gone from an average of 28 years old to 38 years old,” the congressman said. “So younger people aren’t able to buy a home because of the high cost … same with auto loans. I mean, when auto loans used to be 500 bucks a month, now they’re paying $800 to $1,000 a month because of the higher interest rates.”
Notably, the U.S. is an outlier when it comes to the Fed pursuing a dual mandate. Other major central banks from around the world, such as the European Central Bank, the Bank of England, and the Swiss National Bank, all have price stability as their primary or single statutory mandate.
And while Fed Chairman Jerome Powell and other officials often reference the dual mandate, the Fed could be seen as having a triple mandate, with the third goal being moderate long-term interest rates, although that third mandate isn’t spoken about as much.
Congress directed the Fed to pursue those three goals in 1977 with the Federal Reserve Reform Act.
And President Donald Trump’s most recent appointment of Stephen Miran to the Fed board has brought new attention to that third dictate. Trump has been agitating for drastically lower interest rates for months, and Miran — who took a leave of absence from being chairman of the Council of Economic Advisers — shares the president’s view that rates should move lower.
Miran actually raised the matter during his confirmation hearing.
“Congress wisely tasked the Fed with pursuing price stability, maximum employment, and moderate long-term interest rates,” Miran told lawmakers.
TRUMP ASKS SUPREME COURT TO LET HIM FIRE FED GOVERNOR LISA COOK
The Price Stability Act has been introduced several times over the years, but Stutzman said he is hopeful about its prospects this time around, particularly because Hill is pushing for it.
“I’m glad the chairman is the lead author on the bill, which is a good sign that it will probably pass committee and get attention on the floor,” Stutzman said.
