WASHINGTON — The Federal Reserve, having weathered criticism of its regulatory failings and interest rate decisions in the years before the financial crisis, is facing a new source of anger: the Tea Party movement.
Take, for example, three Republican nominees for the Senate who relied on support from Tea Party activists to vanquish primary rivals supported by the party establishment:
In Utah, Mike Lee has accused the central bank of trying to "monetize the debt" by printing money to buy government bonds — a motivation that Fed officials have hotly denied. Ken Buck in Colorado has called for "shining a light on the Federal Reserve," saying it is too cozy with private interests. And in Kentucky, Rand Paul has argued that the Fed is devaluing the dollar and causing boom-bust cycles through its easy-money policies.
They have made the Fed a target of their ire, linking it to their criticisms of President Barack Obama’s stimulus effort and the Wall Street bailouts begun under President George W. Bush.
None of them has gone as far, though, as Paul’s father, Rep. Ron Paul, a Texas Republican and libertarian activist who is seeking to abolish the central bank. (His 2009 book, "End the Fed," is popular in Tea Party circles.) The senior Paul, who ran for president in 2008, is in line to lead a House subcommittee that oversees the Fed if Republicans win control of that chamber in November.
Criticism of the Fed has been more of a simmering undercurrent in this election cycle than a dominant theme, even for insurgent candidates. But Fed officials, who try to avoid public discussion of electoral politics, have become increasingly attuned to the probability that their critics will have a louder voice in the next Congress.
The likely outcome is greater scrutiny of the Fed, even though the Wall Street regulatory overhaul that Obama signed in July already calls for a one-time audit of the Fed’s emergency lending programs as well as a study by the Government Accountability Office of how the central bank is governed.
"The Fed has become politicized, whether we like it or not," said Tyler Cowen, an economist at George Mason University who writes a macroeconomics blog.
To be sure, mistrust of central banking has been an enduring theme in U.S. history. The Fed, established in 1913, is the nation’s third central bank; the other two expired in 1811 and 1836 when their charters lapsed.
"There’s always been this strong tension between people who are likely to be debtors, and who are in effect in favor of cheap money, and people who are creditors and in favor of hard money," said Benjamin M. Friedman, a Harvard economist whose 2005 book, "The Moral Consequences of Economic Growth," argued that growth was essential for social and political progress.
Historically, anger at the Fed has been voiced from the left and the right, but lately it has been more pronounced among conservatives. Friedman said the anger had "understandable origins," saying it resulted from stagnation in the incomes of ordinary citizens, compounded now by high unemployment.
Some critics, however, say the Fed has been too eager to fight unemployment and should be more attentive to inflation risks.
One is Peter D. Schiff, who runs a brokerage firm in Westport, Conn., and unsuccessfully sought the Republican nomination for the Senate in Connecticut this year, with Tea Party support.
Schiff assailed the Fed’s decisions to cut short-term interest rates to nearly zero and buy $1.7 trillion in mortgage-backed assets and Treasury securities to stimulate the economy.
"What we need now is higher interest rates, severe cuts in spending," he said. "And that will bring about a severe downturn, but there’s no way around it. We have to swallow some bitter medicine; if we don’t, we’re going to get sicker and sicker."
He added: "The Fed is the enabler, by keeping credit flowing. It is a drug dealer."
Schiff — who warned in a 2007 book of impending economic collapse and has made Web videos on the topic — is hardly outside the Republican mainstream.
Rep. Spencer T. Bachus of Alabama, the top Republican on the House Financial Services Committee, has also used a drug analogy to describe the Fed’s interventions.
"As with any addiction, an altered state is created where the only choices are permanent addiction or a sometimes painful withdrawal," Bachus said at a House hearing in February.
Dick Armey, a former House majority leader and now a Tea Party organizer, blames the Fed for abetting the crisis by keeping interest rates too low for too long after the 2001 recession.
A few Tea Party candidates, like Lee in Utah, have come close to urging a return to the gold standard, which the United States essentially abandoned in 1933.
Lee, in a forum with voters last year, questioned the use of fiat money, currency that has no intrinsic value but the full faith and credit of the government that issues it. "Maybe we ought to return to the gold system," he said. "I don’t really care whether it’s gold or silver or platinum or Grape-Nuts or Corn Flakes. It’s got to be based on something."
The ire at the Fed may be broad but not very deep. A New York Times/CBS News poll in April found that Tea Party supporters were more likely than all adults surveyed to say they had heard or read about the Fed. While a plurality of Tea Party supporters and all respondents said they had confidence in the Fed to promote financial stability, a sizable minority of both groups said they did not know enough to say.
Even so, the anger has been strong enough to raise some concerns among Republicans. "The positions that have become almost mainstream, at least on the right, used to be extreme positions," Vin Weber, a Republican and a former congressman from Minnesota, told Bloomberg Television this month. "Only the John Birch Society used to call for the auditing of the Federal Reserve."
In an essay titled "Mend the Fed," published in The National Review in June, Josh Barro, a fellow at the Manhattan Institute, noted with dismay that Tea Party activists had gotten the Maine Republican Party to adopt a platform calling for an audit as "the first step in ending the Fed."
"There’s always a problem with unaccountable government agencies, but on the other hand the Fed has had a free hand to do things that have been necessary and unpopular," Barro said in an interview. "If Congress had had the power to stop all the asset purchases the Fed has done, we might have dropped into deflation the last couple of years."
Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City, is the most prominent inflation "hawk" at the Fed, having dissented repeatedly from the Fed’s stance that it intends to keep interest rates near zero for "an extended period."
Hoenig appeared recently before the Hope for America Coalition, an anti-Fed group, in Lenexa, Kan. He noted that financial panics regularly troubled the economy before the Fed was created. He might not have changed their minds, he said, but the crowd was polite and appreciated his willingness to dissent.