Those of us hoping Federal Reserve Chairman Ben Bernanke would announce QE3 this morning were left disappointed. The Fed chief offered nothing in the way of measures to boost the economy in the short term.
This is not to say, however, that Bernanke’s remarks weren’t interesting. Politically, he had quite a few noteworthy thoughts, and, with varying degrees of subtlety, went after Congress in general — and congressional Republicans in specific — on three key areas.
First, the debt-ceiling fight wasn’t just political scandal; Bernanke said it did real damage.
“Bouts of sharp volatility and risk aversion in markets have recently re-emerged in reaction to concerns about both European sovereign debts and developments related to the U.S. fiscal situation, including the recent downgrade of the U.S. long-term credit rating by one of the major rating agencies and the controversy concerning the raising of the U.S. federal debt ceiling. It is difficult to judge by how much these developments have affected economic activity thus far, but there seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth. […]
“The negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses.”
Bernanke had pleaded with congressional Republicans not to hold the debt ceiling hostage, and Republicans promptly ignored him. Now the Fed chief is, in effect, reminding them that they were wrong — and that their radical stunt undermined the United States in a variety of ways.
The problem, however, is that Republicans don’t give a damn. They held the nation hostage, they hurt the economy, they generated a downgrade, they undermined global confidence in the United States, and as Greg Sargent reminds us this morning, they intend to make permanent the very tactics Bernanke warned against today.
Second, the Fed chief alluded to the need for Congress approving some economic stimulus.
“Normally, monetary or fiscal policies aimed primarily at promoting a faster pace of economic recovery in the near term would not be expected to significantly affect the longer-term performance of the economy. However, current circumstances may be an exception to that standard view–the exception to which I alluded earlier. Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months. Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well. In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow. In the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force that is often associated with long-term unemployment. […]
“Fortunately, the two goals of achieving fiscal sustainability — which is the result of responsible policies set in place for the longer term — and avoiding the creation of fiscal headwinds for the current recovery are not incompatible. Acting now to put in place a credible plan for reducing future deficits over the longer term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives.
“Fiscal policymakers can also promote stronger economic performance through the design of tax policies and spending programs. To the fullest extent possible, our nation’s tax and spending policies should increase incentives to work and to save, encourage investments in the skills of our workforce, stimulate private capital formation, promote research and development, and provide necessary public infrastructure. We cannot expect our economy to grow its way out of our fiscal imbalances, but a more productive economy will ease the tradeoffs that we face.”
He added, “Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank,” reminding Congress this is the legislative branch’s job, not the Fed’s.
This is, as Jared Bernstein noted, “as strong an endorsement of a robust, short-term jobs plan as you’ll get from a Fed chief.”
And third, Bernanke shot down the Republicans’ top goal: quickly and immediately taking money out of the economy, lessening demand, and imposing short-term austerity measures. The Fed chairman reminded GOP leaders:
“Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery.”
Taken together, Bernanke didn’t offer QE3, but he did offer a fairly unambiguous rejection of the entire Republican economic agenda.