The Federal Reserve’s Open Market Committee has voted 11-1 to continue and even accelerate its infusion of cash into the national economy. More importantly, perhaps, it announced that it will continue that policy as long as the unemployment rate remains above 6.5 percent and projected inflation remains below 2.5 percent.
That represents a new, even historic level of commitment on the Fed’s part. In effect, Fed Chairman Ben Bernanke and the committee have re-committed themselves to an analysis that joblessness, not inflation, remains by far the biggest challenge to the economy, and that the Fed is obligated to address that challenge aggressively.
With unemployment still at 7.7 percent, well above historic averages, and inflation at roughly 2 percent, well below historic averages, that’s hardly a controversial conclusion. It’s also important to note that in making this decision, Bernanke and the committee are merely carrying out the responsibilities given them by federal law under the so-called dual mandate. Under that law, they are obligated to manage the money supply to both maximize employment and limit inflation, two goals that at times can come into conflict.
However, that dual mandate is highly controversial among many conservatives, who believe that the Fed ought to focus exclusively on inflation — protecting the value of money and property — while taking no responsibility for trying to encourage low unemployment.
Paul Ryan, for example, has introduced legislation that would strip the Fed of the power to pursue low unemployment as a goal. “The Fed should be tasked with the single goal of long-run price stability within a clear framework of overall economic stability,” he wrote in a 2010 op-ed with economist John Taylor. Sen. Marco Rubio recently expressed similar sentiments in a speech to the Jack Kemp Foundation, as have Mitch McConnell, Bob Corker, Jim DeMint and others.
It’s pretty clear that without intervention by the Fed authorized under the dual mandate, unemployment would not have fallen as quickly as it has from the high of 10 percent to its current 7.7 percent. It’s also clear that Bernanke, who was born in Augusta, Ga. and grew up in South Carolina, embraces the dual mandate. As he noted in a press conference this afternoon, it is very important for policymakers to keep in mind the toll taken by unemployment, foreclosures and low-wage growth on actual human beings.
That’s kind of what it’s all about, right?
– Jay Bookman