Did the Republicans Force Bernanke’s Hand?
04/09/2012 1 comentario
To what extent is Fed responding to political pressures? Of course, Federal Reserve officials like to believe they are above the fray, and vehemently deny political considerations play a role in their decision-making process. They must be above the fray, otherwise the cherished independence would be broken. I know this is what I am supposed to believe. Doesn’t every Fed watcher? Yet I can’t help but think that it would be naive to believe that any institution in Washington is above the politics. It is simply not that kind of town. The degree that you have the illusion of independence depends upon your ability to have a substantial block of fiscal policymakers that believe you are doing your job. Not “your job” as you define it, but as they define it, whether or not their definition makes any sense. Such is Washington. Which brings to Pedra da Costa’s Reuters piece this morning: Increasing political encroachment on the Fed, particularly from the Republican Party, could threaten the central bank’s hard-won independence and undermine confidence in nearly 100-year old institution. That was pervasive sentiment among economists gathered at Fed’s annual monetary policy symposium in Jackson Hole, Wyoming. Against the dramatic backdrop of Grand Teton mountain, many said a closely-contested presidential race has turned the monetary authority into a political football. It has always been feared that political independence would be threatened from the left, with the ultimate result of hyperinflation. Not so anymore: “I do fear for it a bit if the election comes out that way, especially if some of more radical voices, that happen to be Republican voices nowadays, get reelected,” said Alan Blinder, Princeton economics professor and a former Fed vice chairman, adding that historically opposition to U.S. central bank had come predominately from the left. “There’s a lot of hostility,” said Blinder, who was appointed to Fed by former president Clinton. Of course, some believe that political pressure is already having an impact: For some observers, that pressure is already affecting Fed’s behavior, preventing it from pushing aggressively for stronger economic growth following sharp blowback received back in 2010, when policymakers announced their last large scale bond purchase program. If in fact this is true, then Federal Reserve Chairman Ben Bernanke made a disastrous tactical error. By not responding even more aggressively, as he now appears to be headed, he opened the Fed up to additional attacks because monetary policy looked ineffective at supporting the economy. As they say, best defense is a good offense. If the economy looked to be returning to pre-recession path of nominal GDP, Fed’s detractors from both left and the right would have less ammunition for criticizing monetary policymakers (…..)