WASHINGTON The Federal Reserve on Tuesday drew fire from conservatives for its recent policy proposals on the downtrodden housing sector that the critics argued represented an overreach by the central bank.
Two Republican senators lashed out at the Fed's "white paper" on housing, which suggested other officials should consider giving failed mortgage finance giants Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) a bigger role in turning the market around.
The protests mark a rekindling of anti-central bank sentiment that reached fever pitch when the Fed launched its second round of bond buying in late 2010. At that time, conservatives accused the central bank of sowing the seeds for future inflation, though recent trends show price pressures ebbing.
The Fed's detractors are now reacting to what they see as central bankers chiming in on fiscal policy matters that are not the appropriate realm for monetary authorities.
"I believe that it is important to the interests of the Federal Reserve, including the independence of monetary policy, that the Fed refrain from providing any hint of activism regarding what are clearly fiscal policy choices," said Orrin Hatch, the top Republican on the Senate Finance Committee.
"I am sure that the Fed would not appreciate a white paper from Congress outlining how to think about and execute monetary policy," he said.
Sen. Bob Corker, a member of the Banking Committee, directed his criticism at William Dudley, the influential president of the New York Federal Reserve Bank, for his suggestion that principal write-downs be considered for distressed borrowers.
Such criticisms have some resonance among a minority of inflation hawks at the Fed. Philadelphia Federal Reserve Bank President Charles Plosser and Richmond Fed chief Jeffrey Lacker have both expressed distaste over an earlier effort by the Fed to drive down mortgage costs by buying mortgage-related debt.
At the other end of the spectrum, Dudley and Eric Rosengren of the Boston Fed have said the central bank should consider further purchases of mortgage-backed securities.
An editorial in the Wall Street Journal on Tuesday was even more scathing, accusing the central bank of "rank electioneering" for issuing the housing proposal.
Fed officials have argued that, given their broad mandate to achieve solid economic growth, it would be irresponsible for them to ignore housing, which continues to be a major drag on the economic recovery.
Recent indicators have been mixed, pointing to some strength in construction but also a continued decline in home prices that bodes ill for a sustained housing rebound.
When Ben Bernanke first took over as chairman at the central bank in 2006, he vowed to steer clear of the type of fiscal debates that got his predecessor, Alan Greenspan, into trouble.
Greenspan had widely been criticized for giving intellectual cover to tax cuts during President George Bush's administration.
In a letter to leading lawmakers that accompanied the "white paper" last Wednesday, Bernanke said the Fed had received questions and requests for input and that the policy proposals were being made in the "interest of a continuing dialogue."
(Reporting By Pedro da Costa; Editing by Dan Grebler)