Pennsylvania Sen. Pat Toomey warned Federal Reserve Chairman Jerome Powell against allowing the central bank to operate outside of its purview during the chairman’s semiannual monetary policy report to the Senate.
“I do think that it’s very important for the Fed to continue focused on the mandate it has and not to seek to broaden that mandate,” Toomey said during his opening remarks. “As noble as the goals might be, issues such as climate change, racial inequality are simply not the purview of our central bank.”
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The Federal Reserve operates on the so-called dual mandate — “promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates.”
Powell, during his remarks, emphasized the Federal Reserve now interprets maximum employment as “a broad and inclusive goal,” noting that it was no longer basing monetary policy on “deviations” from maximum employment but instead only shortfalls.
The central bank has also taken steps in recent months to position itself to address issues that Toomey suggests are beyond its central mandate. In December, the Federal Reserve Board announced that it had joined the Network of Central Banks and Supervisors for Greening the Financial System to “develop our understanding of how best to assess the impact of climate change on the financial system.”
In its latest semiannual report, the Federal Reserve also noted the role the coronavirus pandemic has played in exacerbating “pre-existing disparities in labor market outcomes,” particularly among low-wage workers, racial and ethnic minorities, and women.
Toomey also cautioned against the central bank making an outsize response to what some see as a rapidly developing recovery as coronavirus cases plummet from winter highs and vaccine administration ramps up across the country.
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“There’s also a real danger that we have overheating in places that lead to unwanted inflation, and I think the data is increasingly pointing in that direction,” Toomey said. “Keep in mind, we have $11 trillion in personal saving deposits, the country is in an accelerating reopening as the number of COVID cases is declining very very rapidly on a daily basis, the economy is poised for very substantial growth in the near term, and yet the Fed continues to purchase $120 billion of securities per month, maintain short-term interest rates at basically zero, and Congress is considering, as I said, another bill.”
