Political Animal


July 10, 2012 1:07 PM Fed Ties Its Own Hands

By Ed Kilgore

It’s been obvious for quite some time now that with a Republican-controlled House making fiscal measures to boost the economy impossible, monetary policy is the only instrument left to provide any short-term boost. And the Fed continues to watch the stagnant economy complacently.

The standard explanation is that Ben Bernanke is simply following his prime mission of worrying about possible inflation. But as economists Betsey Stevenson and Justin Wolfers explain in a Bloomberg column, the Fed is actually ignoring its own “dual-mandate” policies in an apparent effort to keep inflation well below its supposed target:

The point is that the Fed’s usual excuse — that it’s hard to nail two goals with just one instrument — doesn’t apply. In normal times, the debate over monetary policy is between “hawks” who want the Fed to emphasize its inflation target, and “doves” who want it to focus on lowering unemployment. But there’s no debate here — more accommodative monetary policy would help achieve the goals for both inflation and unemployment.

The major thing to understand is that “inflation” is not one of the seven deadly sins; it’s simply a number. Zero inflation—or actual deflation—is not some sort of virtue (though it might seem that way to creditors); it’s a vice. So as Stevenson and Wolfers say, the Fed, by tying its own hands, is failing to implement both of its policy mandates. And they sure picked the worst possible time to do so.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.


  • James E. Powell on July 10, 2012 1:36 PM:

    It isn't just Bernanke, it's the whole board. Of course, it is not within the realm of possibility that the board members could be political actors. What were they doing when George W Bush was running for re-election?

  • howard on July 10, 2012 1:36 PM:

    that there isn't a single democratic senator screaming for hearings about why the fed feels entitled to ignore its dual mandate continues to astound me: is there not a single populist bone in any of them?

  • c u n d gulag on July 10, 2012 1:40 PM:

    "...is there not a single populist bone in any of them?"

    Not anymore.

    All of their populist bones have been used to make Whoreporatist soup stocks - and bonds.

  • Citizen Alan on July 10, 2012 2:39 PM:

    Easily the two worst mistakes Obama has made since taking office are (1) appointing that troll Geithner as Secretary of Treasury and (2) reappointing the vile and morally bankrupt Bernanke, a man committed to the utter destruction of the American Middle Class, to the Fed.

  • Patango on July 10, 2012 10:06 PM:

    And it goes to the point when people are critical of obama , and their fellow dems condemn them for it , why obama would pick him to chair the fed , or not replace him , is appalling , it is like someone saying they will go fight for you , then going with out any guns , just a big WTF?