Showing all posts tagged: christina romer
The Fed — supposedly about the fray of partisan politics — is as ideologically divided as everything else in America society, and as a result, an upcoming meeting is likely to expose the deepening split over Fed policies, especially with regard to attacking unemployment:
It’s the Fed’s Time to Step Up - Christina Romer via NYTimes.com
The argument for additional monetary action is straightforward. By law, the Fed is supposed to aim for maximum employment and stable prices. But the unemployment rate is 8.2 percent — a good two percentage points above what even the most pessimistic members say is its sustainable level. Moreover, the spate of disappointing data and the deepening crisis in Europe make continued weakness all too likely.
What about the arguments against further action? I don’t think they are convincing enough to win the debate.
Some Fed members contend that monetary policy has already done its share. Other policy makers, they say, need to step up. Both the Fed’s chairman and its vice chairwoman have talked about the need for additional near-term fiscal stimulus as part of a gradual deficit-reduction plan. And many Fed committee members have called for a more aggressive housing policy. Indeed, the Fed raised some hackles in January when it sent an unbidden white paper to Congress, outlining possible administrative and legislative initiatives to deal with problems like foreclosures and underwater homeowners.
I agree that we need more effective fiscal and housing policies. But neither is likely to happen, at least not before the presidential election. As a result, the Fed is the only plausible source of immediate help for the American economy. It was set up as an independent body precisely so that somebody can do what’s right when politicians can’t or won’t.
I find a related argument even more frustrating: that the Fed shouldn’t act because Congress wouldn’t like it and might retaliate. This argument exposes the important truth that the Fed is only as independent as Congress lets it be.
But it also raises a key question: what are Fed policy makers saving their independence for? If rescuing millions of Americans from the torment of unemployment isn’t a reason to risk their independence, what is?
Yes, what indeed?