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Political fallout puts the Fed in the spotlight

November 23, 2010

By Barbara Marquand | Money Rates Columnist

Until the economic meltdown, the last time most Americans thought much about the workings of the Federal Reserve system was back in college when they took Macroeconomics 101.

Fed policy, after all, isn't sexy, not even to lawmakers.

"Monetary policy has always been considered boring on Capitol Hill, something left to remote policy wonks far away from the din of presidential or congressional politics," U.S. Rep. Ron Paul of Texas writes on his website's "Texas Straight Talk" blog.

Not anymore, though, unless you consider the likes of Sarah Palin a policy wonk. Palin is among a growing list of high-profile critics, which include Paul and U.S. Rep. Mike Pence of Indiana. With the Republican victories Nov. 2, and the Fed's announcement Nov. 3 that it would purchase $600 billion in U.S. Treasury securities to spur the economy, the Fed is under an intensifying spotlight.

Attack on the Fed

Paul, who wants to do away with the Fed, is set to be the chairman of the House Subcommittee on Domestic Monetary Policy.

"While it is gratifying to see so many formerly uninterested politicians, economists, talk show hosts, and pundits suddenly rally to attack the Fed, one can only wonder whether they truly understand that central banking is inherently incompatible with our Constitution and a free market economy," he writes.

Pence, meanwhile, chairman of the House Republican Conference, introduced legislation to limit the Fed's power to price stability and protecting the dollar and end its mandate to promote employment.

Thomas Hoenig, the Fed's lone dissenter on recent monetary policy, recently accepted an invitation to speak to House Republicans in December. In the last seven meetings of the Federal Open Market Committee, Hoenig, president of the Federal Reserve Bank of Kansas City, has voted against the committee's majority opinion to keep the federal funds rate near zero.

What does the political fallout mean for mortgage rates and the interest rates you earn on certificates of deposit, money market accounts and savings accounts? Whether fiery debate will bring about changes that affect your wallet remains to be seen. One thing is sure, though, the Fed will continue to be center stage in coming months.

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