Congress can restore the integrity of the dollar

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All government agencies try to maximize power and minimize accountability, but the Federal Reserve is in a league of its own. What began as a quasi-public clearinghouse with the limited function of stopping bank runs has evolved into a monetary-regulatory behemoth. Its sphere of influence has grown despite its failures, of which 40-year-high inflation is the most recent but by no means the worst.

Constitutionally, the Fed answers to Congress. It’s time for legislators to take back the reins. Three bills recently filed by congressional Republicans – the Gold Reserve Transparency Act of 2021, the Price Stability Act of 2022 and a yet-to-be titled act, H.R. 9157, linking the dollar to gold – can bring the Fed to heel. All Republicans and moderate Democrats should consider them carefully.

We can’t afford an out-of-control Fed much longer. America’s central bank has blurred the line between fiscal and monetary policy beyond recognition. Washington ran $6 trillion in deficits during the COVID-19 years; the Fed added $3.3 trillion to its balance sheets over the same period. That’s more than 50 percent indirect debt accommodation by monetary policymakers.

Our de facto experiment with Modern Monetary Theory has subjected millions of Americans to crippling price hikes. While inflation appears to be cooling down, prices are still rising more than three times as fast as the Fed’s official goal. In fact, Fed officials don’t expect prices to return to normal until 2025. So much for aggressive tightening.

What are our options for reform? All three bills mentioned above subject the Fed to the discipline of rules. Congress gave the Fed its famous “dual mandate” of full employment and stable prices in 1977, but those goals are hopelessly vague. They give the Fed an excuse for its mistakes. For example, the Fed failed to curb inflation partly because it was committed to easy money, which it thought would keep labor markets tight. The problem is the Fed decides for itself how to interpret its mandate. Congressional Republicans are rightly trying to return this authority to the people’s representatives.

By David Brat and Alexander William Salter

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