The question for Bernanke that matters most

THE QUESTION FOR BERNANKE THAT MATTERS MOST…. In just a couple of hours, Federal Reserve Chairman Ben Bernanke will do something no Fed chair has ever done: he’s going to host a press conference. The point, by all accounts, is to make the Fed more transparent, less secretive, and more accountable.

With that in mind, the NYT‘s David Leonhardt focuses on the issue that should be foremost on reporters’ minds when Bernanke opens the floor to questions.

One question more than any than other is crying out for an answer: Why has Mr. Bernanke decided to accept widespread unemployment for years on end, even though he believes he has the power to reduce it?

The Fed’s own forecasts suggest that the unemployment rate won’t fall below 5 percent for perhaps another five or six years. Mr. Bernanke believes the Fed “retains considerable power” to reduce unemployment faster, despite the fact that its benchmark interest rate is zero, as he’s said before. Yet he has been hesitant to use that power.

He is in a tough spot, to be fair. Several other voting members of the Fed’s monetary policy committee — and some prominent members of Congress — oppose aggressive action, because they worry it will set off inflation. But these critics always worry about inflation. They have been wrong again and again over the last two years. More important, they don’t have enough power to keep Mr. Bernanke from pursuing the policy he thinks is best.

So the Fed’s decision to permit high unemployment for an extended period rests on his shoulders.

I mention this because, as we discussed yesterday, I desperately want the focus to shift back to job creation, and it’s a relief when prominent voices show they still care.

Inflation barely registers, but the Fed’s far-right critics insist that the problem that doesn’t exist must take priority over the problem that does (high unemployment). They’re wrong, but this is one of the dominant thoughts in Republicans’ economic policy.

As [Bernanke] has explained many times, the Fed has alternatives. It could announce that it would keep its benchmark rate at zero for a few years, which would probably hold down long-term rates. It could say that it was comfortable with higher inflation for a limited period of time, given how low inflation has been since 2007 and how high unemployment is. Above all, Mr. Bernanke could make clear that he considers years of widespread unemployment to be unacceptable.

He has not done so, and he has yet to offer a satisfying rationale.

It sounds to me like the sort of thing to base a press conference on.