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3 problems Congress should stop asking the Fed to solve

February 11, 2014: 3:36 PM ET

Fed Chair Janet Yellen visited Capitol Hill today, offering a perfect time to break out three problems that, for whatever reason, Congress has convinced itself the Fed has a responsibility to address.

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FORTUNE -- Twice a year, the chair of the Federal Reserve submits herself to questioning from the House Financial Services Committee, and twice a year Congress embarrasses itself by misunderstanding the role and powers of the central bank.

Tuesday was the first time newly confirmed Fed Chair Janet Yellen visited Capitol Hill for such grilling, offering a perfect time to break out three problems that, for whatever reason, Congress has convinced itself the Fed has a responsibility to address.

1. The deficit and debt. Representative Randy Neugebauer accused the Fed of being a "deficit enabler," because of its massive bond buying programs that have driven down interest rates and therefore decreased the interest rate costs of a higher deficit and total debt. And Yellen was on point when she said in so many words that it wouldn't be helpful to raise interest rates and torpedo the economy just so that Congress will do its job.

It's the Fed's responsibility to target interest rates in a way that promotes low and stable inflation and low unemployment. It's the job of Congress to tax and spend in a way that achieves national priorities without hurting the economy.

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While it's true that CBO budget projections suggest that U.S. debt will become a significant problem in the long run, this isn't the Fed's fault. That falls on the shoulders of Congress that is incapable of compromise on a package of (long-term) tax hikes and benefit cuts that would get the job done.

2. Solving income inequality. Wisconsin representative Gwen Moore was among several elected officials to bring up the phenomenon of growing income inequality in America. While income inequality probably isn't a great thing for social cohesion, and is potentially bad for economic growth, it's not a problem the Fed has the ability to solve. Yes, Federal Reserve bond buying disproportionately benefits the already wealthy: those who own homes and stocks. But it doesn't do anything to make the poor worse off, and the benefits likely trickle down to the less fortunate through job creation.

If you have the opportunity to enact a stimulus program, like quantitative easing, at very little cost, does it makes sense to not do it because it helps some people more than others?

There is one institution, however, that could help reduce income inequality through taxes and benefit programs. That institution? You guessed it ... Congress.

3. Embattled savers. For years, representatives like Steve Pearce of Texas have given former Fed Chair Ben Bernanke -- and now Janet Yellen -- flack for the suffering of retired Americans, who are living off their savings and are therefore harmed by the very low returns they are earning on safe investments like U.S. government debt. And while it's important to recognize that these people are suffering because of low interest rates that are the result of both the weak economy and Federal Reserve policy, it's also important to realize that the entire country is suffering from a weak economy.

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As Pearce said at Tuesday's hearing, there are many older Americans who played by the rules, worked their whole lives, and thought they saved enough to live a comfortable retirement. But what about the young worker who played by the rules, worked hard, and graduated from school but now can't find a job? What about the business owner who played by the rules and worked hard, but can't get a bank loan because of a still-weak financial system?

It doesn't make sense to prioritize the suffering of retired workers over those who are helped by lower interest rates, and it wouldn't be ultimately beneficial for retired workers if the Fed were to purposefully sabotage the economic recovery by raising rates.

Of course, Representative Pearce and Congress in general have all sorts of tools -- like the tax code or Social Security -- that could be wielded to help retired Americans, if they were so inclined.

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