By: Sean Fieler
November 17, 2013
Time for change at the Federal Reserve.
Opposing Janet Yellen’s nomination as chair of the Federal Reserve Board of Governors is both good policy and good politics for Senate Republicans.
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In her remarks Thursday before the Senate Banking Committee, Yellen made it clear that she will keep interest rates low and the Fed’s balance sheet growing in an effort to boost employment. What remains less clear is whether this policy will actually work. After all, labor participation rates remain near 20-year lows despite the Fed’s nearly $4 trillion balance sheet expansion.
While the Fed’s easy-money policies have not produced many jobs, they have produced a persistent, low rate of inflation that is choking the American middle class. Since the asset purchases began five years ago, the average American family has experienced rising prices and stagnant wages. The resulting decline in living standards explains why voters ranked rising prices nearly tied with unemployment as their top economic concern during the 2012 election.
As the middle class struggles, America’s wealthy are benefiting from the Fed-induced rally in asset prices. Given the selection of New York City apartments now listing in the $100 million range, it is with good justification that Andrew Huszar, the former Fed official who managed its quantitative easing program, called the Fed’s policies “the greatest backdoor Wall Street bailout of all time.” Sen. Heidi Heitkamp of North Dakota, a Democrat on the banking committee, reinforced this point in Thursday’s hearing, flatly stating that the “trickle down” the Fed has been expecting hasn’t happened.
Worst of all for those focused on limiting the size of government, Yellen’s easy-money policies are encouraging Washington’s continued fiscal irresponsibility. With the Fed as a ready buyer of Treasury debt, even the Tea Party Republicans have not been able to meaningfully shrink the government’s size.
While Yellen’s easy-money policies are a problem for America, they are a godsend for a Republican Party in search of a middle-class economic policy. Yellen’s extremism offers the Republicans the perfect opportunity to embrace sound money and send a clear signal to voters that they are listening to their concerns about rising prices and falling living standards.
If easy money delivers what it always has throughout history — growing inflation, growing inequality and growing government — a Republican embrace of sound money will offer America a way back to prosperity and the GOP a way back to a governing majority.
Sean Fieler is chairman of the American Principles Project, a Washington policy organization.
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