NEW YORK ( TheStreet) -- Testifying before the Senate Banking Committee this week, Federal Reserve Chairwoman Janet Yellen cherry-picked data on inflation by noting prices are up less than the Fed's target of 2%.
The Labor Department's consumer price index has accelerated since March and was up 4.2% in May.
On Tuesday, it will release June data, and although the numbers may not be quite so high, they likely will show inflation continued above 3%. Once inflation gets out of control, history has shown it is difficult to contain without a steep and painful recession.
Congress recognizes these dangers, and Yellen's cognitive dissonance will add new life to legislative proposals to rein in the Fed's independence.
A bill under consideration would require the Fed to submit to Congress a detailed strategy or rule for the Fed's policy instruments -- for example, targets for money supply growth, lending rates to banks, etc. -- and essentially handcuff quick Fed responses to emerging crises.
The Dodd-Frank legislation was intended both to curb destabilizing practices on Wall Street and to permit the Fed to better respond to crises -- for example, the 2008 Lehman Brothers collapse, which in the absence of Fed intervention caused the house of cards that was mortgage backed securities to collapse and ignited the worst financial crisis since the Great Depression.
The Fed's credibility is already suffering greatly from the ill-considered actions of former Chairman Ben Bernanke and former Treasury Secretary Timothy Geithner. Together, they bailed out the biggest financial firms, but largely left top officials, with the exceptions of those seized by the federal government, to continue to find creative ways to gamble and pay themselves outlandish bonuses.