Bernanke Keeps the Easy Money Coming

Fed chairman shocks experts with decision to leave economic-stimulus programs untouched.

Chairman of the Federal Reserve Ben Bernanke testifies before the House Financial Services Committee on Capitol Hill in Washington, Wednesday, July 17, 2013. 
National Journal
Patrick Reis
See more stories about...
Patrick Reis
Sept. 18, 2013, 10:41 a.m.

The Fed­er­al Re­serve is still go­ing all-in on its ef­forts to stim­u­late the U.S. eco­nomy, Chair­man Ben Bernanke an­nounced Wed­nes­day, sur­pris­ing ex­perts who had pre­dicted the Fed would taper its stim­u­lus ef­forts.

In­stead, the Fed will con­tin­ue its $85-bil­lion monthly bond buys — a mon­et­ary-policy tech­nique known as “quant­it­at­ive eas­ing” — that are in­ten­ded to lower in­terest rates, sup­port the hous­ing mar­ket, and stim­u­late eco­nom­ic growth.

The Fed’s mon­et­ary-policy com­mit­tee has been say­ing for months it will be­gin scal­ing back the bond buys when it is con­fid­ent in the strength of the U.S. eco­nomy, and many pre­dicted that the pan­el would make that de­cision fol­low­ing the two-day meet­ing that ended Wed­nes­day.

But in a state­ment fol­low­ing the meet­ing, the com­mit­tee said it pre­ferred to take a wait-and-see ap­proach with eco­nom­ic growth.

“The Com­mit­tee sees the im­prove­ment in eco­nom­ic activ­ity and labor mar­ket con­di­tions since it began its as­set pur­chase pro­gram a year ago as con­sist­ent with grow­ing un­der­ly­ing strength in the broad­er eco­nomy,” the com­mit­tee said in a state­ment fol­low­ing the meet­ing. “However, the Com­mit­tee de­cided to await more evid­ence that pro­gress will be sus­tained be­fore ad­just­ing the pace of its pur­chases.”

The Fed will also con­tin­ue the oth­er pil­lar of its stim­u­lus plan: keep­ing the fed­er­al funds rate low for banks, an­oth­er policy aimed at keep­ing money cir­cu­lat­ing throughout the eco­nomy.

Since the fin­an­cial crisis, Bernanke’s Fed has gone to great lengths to at­tempt to stim­u­late the eco­nomy, and the chair­man has faced great cri­ti­cism for it. Con­gres­sion­al Re­pub­lic­ans have pil­lor­ied Bernanke — who was first ap­poin­ted by former Pres­id­ent George W. Bush — over the stim­u­lus ef­forts, say­ing they have left the eco­nomy at risk for fu­ture in­fla­tion.

Thus far, in­fla­tion re­mains well be­low the bank’s tar­get rate of 2 per­cent, and the com­mit­tee Wed­nes­day said it did not ex­pect in­fla­tion to rise sharply in the fu­ture. Ac­cord­ing to a set of eco­nom­ic fore­casts re­leased along­side the policy state­ment, the Fed ex­pects in­fla­tion to re­main be­low 2 per­cent through 2016, and re­main at between 1.1 per­cent and 1.2 per­cent for the rest of 2013.

The cent­ral bank did, however, pre­dict up­com­ing de­creases in the un­em­ploy­ment rate. The un­em­ploy­ment rate sat at 7.3 per­cent in Au­gust, but the Fed pro­jec­ted Wed­nes­day that it would fall to between 6.4 per­cent and 6.8 per­cent in 2014, and to as low as 5.9 per­cent in 2015.

What We're Following See More »
STAFF PICKS
What the Current Crop of Candidates Could Learn from JFK
1 days ago
WHY WE CARE

Much has been made of David Brooks’s recent New York Times column, in which confesses to missing already the civility and humanity of Barack Obama, compared to who might take his place. In NewYorker.com, Jeffrey Frank reminds us how critical such attributes are to foreign policy. “It’s hard to imagine Kennedy so casually referring to the leader of Russia as a gangster or a thug. For that matter, it’s hard to imagine any president comparing the Russian leader to Hitler [as] Hillary Clinton did at a private fund-raiser. … Kennedy, who always worried that miscalculation could lead to war, paid close attention to the language of diplomacy.”

Source:
STAFF PICKS
Maher Weighs in on Bernie, Trump and Palin
2 days ago
WHY WE CARE

“We haven’t seen a true leftist since FDR, so many millions are coming out of the woodwork to vote for Bernie Sanders; he is the Occupy movement now come to life in the political arena.” So says Bill Maher in his Hollywood Reporter cover story (more a stream-of-consciousness riff than an essay, actually). Conservative states may never vote for a socialist in the general election, but “this stuff has never been on the table, and these voters have never been activated.” Maher saves most of his bile for Donald Trump and Sarah Palin, writing that by nominating Palin as vice president “John McCain is the one who opened the Book of the Dead and let the monsters out.” And Trump is picking up where Palin left off.

Source:
×