As Federal Reserve Chair Janet Yellen begins the delicate process of deciding when and how to raise interest rates without stifling the economy, she is facing sharp new pressures from both sides of the congressional aisle. Republican leaders say they plan to use their new dominance on both sides of Capitol Hill next year to target the Fed for much greater scrutiny, including aggressive hearings and possible passage of bills to drag the central bank’s secretive policymaking process out into the open.
“Their new aggressiveness is increasingly alarming to current and former Fed officials, who say they are concerned about the institution’s historic independence from political pressure, particularly at a time of persistent dysfunction in fiscal policymaking on Capitol Hill.
All of this pressure will come as Yellen, in her first full year in the job, attempts to shift Fed policy away from crisis mode without wrecking the global economy. Moving too aggressively to raise interest rates could drive the country back into recession, while moving too slowly risks a disastrous spike in inflation.
“‘She faces the enormous risk of being the one who has to say ‘Well, I’m sorry, we did what we thought was best, but the economy went to hell in a handbasket, anyway,’; said Bob Eisenbeis, chief monetary economist at Cumberland Advisors. ‘And she will face pretty much constant harassment from politicians on all sides.’ This harassment — defenders would call it robust oversight — will come largely from Republicans who believe they have a mandate to expose the inner workings of one of the world’s most important economic decision-making bodies.
