WASHINGTON (Reuters) - The popularity of Tea Party candidates in U.S. elections could spell renewed efforts to curtail the power and independence of the Federal Reserve, which has been cast as an emblem of big government overreach.
Outsider candidates thriving on the right flank of the Republican Party have tapped anger at bank bailouts, soaring budget deficits and President Barack Obama’s healthcare and regulatory initiatives to topple establishment GOP politicians in elections around the country.
Tea Party members have lambasted the Fed for its unprecedented and aggressive steps to bolster the economy in the wake of the 2007-2009 financial crisis, saying the moves have exposed a lack of accountability at the Fed and raise the risk of damaging inflation down the road.
Efforts to submit the Fed’s monetary policy decisions to congressional review or to give Congress say in appointing officials at regional Fed banks could gain fresh momentum if Republicans win big, as expected, on November 2.
Bolstered by the Tea Party buzz, the GOP is seen taking control from Obama’s Democrats of one or possibly both houses of Congress. Although legislative gridlock is likely to limit how much activists can accomplish, the tone of congressional debate over the Fed could become much more confrontational.
With unemployment at high levels and many Americans still feeling the effects of the recession that ended last year, Tea Party supporters have been left wondering how they benefited from the Fed’s stabilization of the financial system.
“I think that it is ... a feeling that, as with many other government institutions, intervention hasn’t helped, but has hurt,” said Anne Sorock, director of marketing with the Sam Adams Alliance, a conservative research group that has studied Tea Party supporters.
The Fed has already faced sharp fire in Congress over its emergency financial rescues and its regulatory lapses, but it avoided the most draconian proposals to curtail its powers in a revamp of financial rules that Congress approved in July.
Its defenders argue the central bank was right to act aggressively to stem the crisis, and they credit it with preventing a financial collapse and deeper economic downturn.
But the Fed’s use of unorthodox methods, particularly purchases of massive amounts of mortgage-related and government debt, have caused uneasiness over its vast powers.
Tea Party rhetoric suggests initiatives to clip the Fed’s wings have found new champions.
Rand Paul, a Kentucky Republican Senate candidate, echoes the views of his father, Texas Representative Ron Paul, who has persistently sought to abolish the Fed and return the United States to a currency backed by gold or silver.
“The Federal Reserve, an unelected group of private bankers, is printing trillions of dollars to bail out private industry, purchase government debt, and flood the market with cheap credit,” Rand Paul says on his web site.
In fact, the Fed is composed of a seven-member Board of Governors, appointed by the president and subject to Senate confirmation, and 12 regional Fed banks.
The Fed bank presidents are appointed by their own nine-member boards of directors, three of whom are bankers -- although the recent regulatory reform bill now bars the bankers from voting for the president. Three are non-bankers selected by bankers and the remaining three are non-bankers named by the Fed board in Washington.
Rand Paul does not specifically advocate getting rid of the central bank but says he favors greater transparency and accountability. His father, author of a book titled “End the Fed,” could end up chairing a House committee overseeing the central bank if, as expected, Republicans wrest control of the chamber from Democrats.
Another Tea Party candidate who has sharply criticized the Fed is Utah Senate contender Mike Lee.
Lee defeated 18-year incumbent Senator Robert Bennett in a primary, using Bennett’s vote to reappoint Fed Chairman Ben Bernanke to a second term as a rallying cry.
“It is time to send a clear message that ‘business as usual’ is not acceptable, that transparency is mandatory and that everyone is accountable, now and in the future,” Lee said in January. He is the firm favorite to win the Utah race.
The Fed has strenuously objected to congressional reviews of its monetary policy decisions, arguing financial markets could push up interest rates out of fear politics and not economics would drive policymaking.
Whether Tea Party candidate inroads translate to policy audits or not, broader concerns about the U.S. budget deficit and indebtedness may spur politicians to be more critical of the Fed’s aggressive bond-buying spree.
The Fed has bought $1.7 trillion in securities to spur economic growth in a policy known as quantitative easing, and it is expected to launch a fresh round of bond buying -- dubbed QE2 -- at a November 2-3 meeting.
“Maybe it’s necessary for the Fed to do QE2 -- I‘m not sure -- but it means the Fed will create money and hand it to the Treasury to spend,” said Phillip Swagel, a Treasury Department official under Republican President George W. Bush.
“That is exactly the sort of thing that concerns many people -- a government in which spending seems to be out of control -- and here is the Fed facilitating more of it.”