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GOP wants Fed to narrow focus

Nancy Marshall-Genzer Nov 16, 2010
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GOP wants Fed to narrow focus

Nancy Marshall-Genzer Nov 16, 2010
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TEXT OF STORY

Kai Ryssdal: The Federal Reserve continues to be a political target over its $600 billion economic stimulus package. Conservative economists and observers, as we told you yesterday, want Ben Bernanke to stop all that easing he’s doing, quantitatively. Today, some congressional Republicans said they want the Fed to narrow its focus even more.

Marketplace’s Nancy Marshall Genzer explains.


Nancy Marshall Genzer:More than 30 years ago, Congress gave the Fed a dual mandate: Control inflation and keep unemployment low.

But Tennessee Senator Bob Corker, a Republican on the banking committee, told CNBC those goals can conflict.

Bob Corker: I think the dual mandate creates a lot of confusion, not only among board governors, but the market in general. It’s sort of a bipolar-type activity.

Corker and other Republicans want the Fed to concentrate solely on inflation. That’s because controlling inflation can cause higher interest rates, making it more expensive for companies to borrow money. They might stop hiring or let workers go. Inflation is under control but unemployment rises. But some economists say things have a way of balancing out.

Ted Truman is a former Fed economist.

Ted Truman: In the end, there really isn’t a fundamental conflict between inflation and unemployment. In the short run, sometimes there is. But in the end, in the long run — which is what the central bank should be worrying about — there isn’t a conflict.

Truman says in the long run, the job market improves. Knowing that, the Fed already focuses on inflation. Former Fed Governor Laurence Meyer has a different take. He says the Fed should not be told to ignore unemployment.

Laurence Meyer: You’d think the Congress would be focused on jobs, jobs, jobs. And here they are telling the Fed not to focus on jobs, jobs, jobs.

One thing Meyer and Truman agree on: Politics is motivating this debate. And right now, it’s good politics to criticize the Fed.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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