March 2, 2012 – 9:58 p.m.

GOP Readies Bill to Overhaul Fed’s Makeup, Mandate

Griping about the Federal Reserve has become a national pastime for many Republicans, but Kevin Brady of Texas is readying a bill that goes beyond just jawboning.

Brady will formally unveil legislation Monday that would fundamentally reshape the Fed in accordance with Republican wishes. The measure amounts to a comprehensive overhaul of the central bank, starting with a repeal of the Fed’s current dual mandate to achieve maximum sustainable employment and keep prices stable.

Brady’s bill would narrow the mandate to focus solely on price stability. Many Republicans say that strictly focusing on prices is the best way to maximize employment and ease worries that the Fed’s moves to buoy the economy could spark inflation.

It’s the kind of legislation that’s sure to appeal to core conservatives, who have complained bitterly about the Fed’s involvement in the 2008 bailouts and unorthodox bond-buying moves aimed at stimulating the nation’s sluggish economy.

Still, even if the measure makes it to the House floor, it stands little chance of moving in a Senate controlled by Democrats.

It’s noteworthy that serious calls for change at the central bank have moved beyond long-time Fed critics such as Rep. Ron Paul, R-Texas, who is vying for his party’s presidential nomination. Other GOP presidential contenders from Newt Gingrich to Mitt Romney have taken pot shots at the Fed and its chairman, Ben S. Bernanke, throughout the campaign season.

Brady’s bill would do more than just change the Fed’s mandate. It would dig deep into the central bank’s operations and shows just how much Republicans would like to change things.

The draft measure would make the 12 regional Federal Reserve bank presidents permanent members of the Federal Open Market Committee, the branch of the Fed that sets interest rate policy. That would effectively make the central bank a more conservative institution, as the presidents of the regional banks generally represent the right end of the political spectrum.

It could also weaken the Fed chairman’s control over monetary policy. Regional bank presidents, who are chosen by their local communities, currently rotate in groups of four through voting duties on the committee and they’re the most likely to cast dissenting votes. Permanently seating all of them on the committee could substantially shift the balance of power.

Among other changes, Brady’s bill also would bar the Fed from buying securities other than U.S. Treasury bonds, except in cases of emergency. Republicans complain that buying other securities, like mortgage-backed securities, amounts to picking winners and losers in the economy.

For his part, Bernanke has expressed little interest in altering the dual mandate. “I don’t think we would be doing radically different things if we had a single mandate at this particular point in time,” Bernanke said at a Senate Budget Committee hearing early in February. “We are quite aware of these costs and risks.”

Brady will unveil his bill during a speech at the American Enterprise Institute.