Rep. Jeb Hensarling (R-Texas), the chairman-elect of the House Financial Services Committee, criticized the Federal Reserve’s decision to provide additional stimulus last week.
“Unfortunately, as evidenced by [last week]‘s announcement, the Federal Reserve continues to use expansive monetary policy to cover a multitude of fiscal policy sins,” Hensarling said.
The Federal Reserve announced a bond-buying program to purchase $45 billion per month of long-term Treasurys. The content and scope of the plan were as expected by the industry, but the central bank also set goals for unemployment and inflation. In an unexpected move, the Fed announced that it would hold interest rates near zero as long as the unemployment rate holds above 6.5 percent and as long as inflation does not exceed 2.5 percent, MarketWatch reports.
The Fed’s plan is to maintain the pace of asset purchases at $85 billion per month. If the bank had not taken action, asset purchases would have been reduced at the end of the year when its existing plan to swap short-term debt for longer-term debt expires.
“At a time of negative real interest rates and trillions in excess reserves, there is little which monetary policy can achieve to promote economic growth and much the Fed risks by its continued commitment to an overly accommodative monetary policy stance,” Hensarling said.
Additionally, the Fed initially plans to keep the buying pace at $45 billion per month, suggesting that lawmakers may review the buying plan later on.
“There are limits to what monetary policy can achieve,” Hensarling said. “Unfortunately, it’s clear the Fed plans to continue with a high-risk strategy.”