Infrequent
There are times - when the Fed speaks - that its message is extraordinary, pressing, and, today, almost pleading. What Fed Chairman Bernanke said earlier this afternoon to the Economic Club of Indiana, in Indianapolis, is one of those.
As a scholar of the 1930's Depression, Mr. Bernanke was at pains to stress that, while the US economy is not right now in recession, and that a re-emergence of inflation is nowhere on the horizon, his QE3 can't on its own ensure that economic growth strengthens sufficiently to produce a sustainable drop in unemployment. Regular readers of my postings may recognize this theme.
Appointed Fed Chairmen simply don't - usually - comment critically on fiscal policy, which is set by the President and elected representatives of the the Congress. But this afternoon, Mr. Bernanke implored Washington officials to support his monetary policy - in the short-term, to mitigate the upcoming "fiscal cliff" of tax increases and sudden expenditures cuts, and, more importantly, to bilaterally adopt a longer-term plan to restore fiscal balance. To this point, here's a part of what he said today:
I certainly don't underestimate the challenges that fiscal policymakers face. They must find ways to put the federal budget on a sustainable path, but not so abruptly as to endanger the economic recovery in the near term. In particular, the Congress and the Administration will soon have to address the so-called fiscal cliff, a combination of sharply higher taxes and reduced spending that is set to happen at the beginning of the year. According to the Congressional Budget Office and virtually all other experts, if that were allowed to occur, it would likely throw the economy back into recession. The Congress and the Administration will also have to raise the debt ceiling to prevent the Treasury from defaulting on its obligations, an outcome that would have extremely negative consequences for the country for years to come. Achieving these fiscal goals would be even more difficult if monetary policy were not helping support the economic recovery.
As a student of economic policy over quite a few years, this writer is astonished that Chairman Bernanke ventured this far with his comments about non-Fed mandates. I'm also encouraged.