High inflation creates major hardships for American households. Since January 2020, prices have grown at nearly 4% per year, which is double the rate the Federal Reserve targets. The prices we confront most frequently— food, energy, and shelter— have experienced some of the largest spikes. No wonder so many people think the economy is weak. It’s hard to make ends meet when your expenditures grow faster than your income and savings.

Prices are 9% higher today than they would have been if monetary policymakers had done their job. Indeed, persistent price hikes are the greatest policy blunder of the 21st century. 

Of course, the costs of the global financial crisis in 2008 or the COVID-19 crisis were far worse. But those were not straightforward policy failures. It’s almost impossible to predict a banking meltdown or a pandemic, and once they happen, the best policy response is highly uncertain. 

However, it is definitely possible to predict inflation. From March to June 2020, the Fed expanded its balance sheet by more than 70%. Its total assets had almost doubled by the time inflation took off in spring 2021. In short, the Fed created the conditions of “too much money chasing too few goods,” which is universally understood to be the cause of inflation. Monetary policymakers should have known inflation would not be transitory.

The Fed has two major tasks. First, it’s supposed to use its monetary policy powers to maintain full employment and stable prices. This is the famous “dual mandate” which Congress gave it in 1977. Second, it’s supposed to maintain the stability of the financial system. To prevent panics, the Fed has authority to engage in emergency lending. It also has supervisory and regulatory authority over the banking system. 

Unfortunately, none of this is working as intended. 

For too long, Congress has given the Fed a wide berth to interpret its own mandate and craft policy accordingly. Reliance on monetary policymakers’ supposed expertise has been a mistake. It’s time for legislators to rein in the central bank. 

Congress should pare back the monetary mandate to a single goal: price stability. Congress should also strictly limit the Fed’s financial powers. We need to accomplish both to break the Fed’s century-long track record of economic mismanagement.

For example, there’s no reason for the Fed to focus on unemployment separately from price stability. They rise and fall together. The Fed’s job is to keep aggregate demand (total spending on goods and services) steady. This ensures both strong labor markets and predictable purchasing power. 

In contrast, separating unemployment goals from inflation goals is a recipe for mischief. Starting in 2020, the Fed proclaimed a more “broad based and inclusive” unemployment goal as a justification for keeping policy loose as long as it did following COVID-19. Its preoccupation with “equity” was one reason it fumbled on inflation. Legislators should eliminate this harmful possibility. 

Arguably, the Fed has misused its financial supervisory powers to an even greater extent. As my co-author Louis Rouanet and I show in a new paper, the Fed has both embraced and succumbed to “mission creep.” It is using its oversight responsibilities as an excuse to involve itself in policy areas totally unrelated to its congressional grant of power. The Fed is actively steering credit to preferred organizations, promoting a contentious view of racial equity, and even gearing up to force the financial system to “go green.” 

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This is unlawful, plain and simple. Congress, not the Fed, is where social and environmental policy should be made. Hence, Congress must compel the Fed to stay in its lane. Legislators should eliminate its lending and credit provision powers. They should also limit its regulatory powers to ensure private banks maintain adequate capital. Anything more than this is unnecessary and unjustified.

Lawmakers are supposed to look out for their constituents, many of whom are suffering due to the Fed’s mistakes. They can and should make the case for Fed reform. Nearly everyone knows firsthand the pain of dollar depreciation, and with inflation continuing to eat at Americans’ wallets, you can bet the public will get on board.

Alexander William Salter is the Georgie G. Snyder Associate Professor of Economics in the Rawls College of Business at Texas Tech University and a research fellow at TTU’s Free Market Institute.