Yesterday the top four Republican Congressional leaders sent a letter to Fed Chairman Bernanke about monetary policy. I think that was a big mistake.
The letter weighed in on the Fed’s debate about monetary policy, and was sent by Speaker Boehner, Leader Cantor, Leader McConnell, and Whip Kyl. The key text is:
Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.
I’m not commenting today on the economic or substantive policy view the Leaders express, but instead on the process point. The U.S. has several long-standing economic policy advantages over many other countries. One of those advantages is a fairly apolitical monetary policy process. I think monetary policy is worse when it is influenced by political pressure from Congress or the White House. The Leaders’ letter is a clear attempt to apply pressure to the Fed.
The letter offers a commonly-expressed opinion about what the Federal Open Market Committee should (not) do. Coming from market participants, academic economists, or an editorial page, these views are perfectly appropriate and contribute to a vigorous policy debate.