I wanted to make brief comments on two headlines on the front page of yesterday’s Wall Street Journal. The first headline is the title of this post. The article beings: “Federal Reserve officials said they expect to keep short-term interest rates near zero for almost three more years and signaled they could restart a controversial bond-buying program in yet another campaign to rev up the disappointing economic recovery.”*
Obviously, my prior posts worrying about inflation have not been accurate, so my record as an economic predictor (or worrier) is suspect. But still, I wonder whether Chairman Bernanke and the other Fed governors know what the solution to our economic problems is. They stopped the financial crash from turning into a depression in 2008-09, but their efforts have not gotten the economy really started since then. Of course, if what we had was financial crash/recession (like in the 1930s), as opposed to the more run-of-the-mill recessions we have had recently, then the fact that they don’t know what to do is understandable. This is the first one of those recessions we have had since the 1930s.
But if the Fed really doesn’t know what to do and what will work – and the Fed’s trying so many unusual policies seems to indicate that they don’t, then maybe it would better if they stopped trying so much. Instead of doing so many things that they have never done before and that they don’t know will work (or even how they will work and whether they will do more good than harm), maybe they ought to stop. Maybe they should just set some kind of reasonable, middle-of-the-road, medium-term policy and then get out of the way and let the economy get better on its own.
Actually, it seems likely that, to the extent the government needs to do something to help the economy, it is Congress and the President who need to do something, the Federal Reserve having already done as much it is capable of doing. Instead of monetary policy being the problem (and the solution), it seems likely it is spending policies and tax policies that need to be fixed. The Fed can’t do that – and there is no reason they should continue to try doing other things if it is spending and taxing policies that need to be changed. Because by trying to do things it is not equipped to do, the Fed may wind up accomplishing less than if it just did what it can do properly.
-----------
* Luca Di Leo and Jon Hilsenrath, “Fed Sees Low Rates to 2014,” The Wall Street Journal, January 26, 2012.
Comments