JONATHAN COHN AUGUST 27, 2010
Federal Reserve Chairman Ben Bernanke today announced that the Federal Reserve is prepared to bolster the economy if the economic recovery weakens further.
Note the key words: "prepared," "if," and "further." While media coverage is focusing on the possibility that the Fed might do more in the future, the economists talking to TNR this morning think it should be doing more already. Via e-mail:
Josh Bivens, Economic Policy Institute:
My first takeaway is that it’s frustrating that he insists the Fed *could* do more but that it’s unclear whether or not the benefits of actually doing more outweigh the costs. Given the sharp deceleration in growth (from 3.7% in the first quarter of 2010 to 1.6% in the second) and the very clear disinflation going on, it seems like a slamdunk to me that the benefits of more monetary stimulus outweigh the costs.
Henry Aaron, Brookings Institution:
After a slow start, Ben Bernanke rose magnificently to the challenge of dealing with the financial meltdown in 2008. He now faces a more subtle and possibly more difficult challenge--how to mobilize a wavering financial community, fearful of rising debt, to back the use of the FED’s prodigious powers to revive a faltering recovery. The threat in 2008 was dramatic and sudden. The threat today is of a more protracted calamity--years of avoidable unemployment and budget crises caused by depressed economic activity.
Dean Baker, from the Center for Economic and Policy Research:
Bernanke obviously doesn't understand his job responsibilities. The Fed is legally required to pursue full employment. There is no way that the current level of unemployment and projected future levels of unemployment can be called full employment.
His refusal to take stronger steps, like targeting a 3-4 percent inflation rate as Bernanke advocated for Japan back in 1999, in this situation is a gross violation of his duties. This is like the FDA refusing to examine new drugs for approval.
Congress should be calling him on the carpet. Wall Street maybe happy with Bernanke's caution, but he is causing immense and pointless pain to the rest of the country.
I'm canvassing for some more opinions, including on the right. I'll update this post as I get them.