WASHINGTON: Republican legislation to limit the Federal Reserve's mandate to fighting inflation would restrict the types of bonds the US central bank could buy and potentially force sooner-than-expected sales of mortgage-backed securities.
Aides to Representative Kevin Brady said on Friday his reform bill would allow the Fed to invest only in US Treasury debt and repurchase and reverse-repurchase transactions used to add or drain banking system reserves except during emergencies.
Brady, a long-time Fed critic and chairman of the Joint Economic Committee of Congress, plans to formally introduce his "Sound Dollar Act" on Monday.
The Brady bill brings together a series of reforms that address congressional Republicans' complaints that the Fed emerged from the financial crisis with too much power, and has strayed into fiscal policy and credit allocation while perpetuating expectations it will bail out the largest financial institutions.
The bill is unlikely to clear Congress, where Democrats who control the Senate will be reluctant to drop the Fed's mandate to focus on full employment.
Still, the measure represents an important marker that could set the tone for legislation on the Fed if Republican political power grows in November elections.
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