Ben Bernanke is about to become the world's most powerful patsy.
In a weak economic climate, the Fed chairman is never a fan favorite. Unfortunately for Bernanke, it's also an election year. Both parties are currently focused on assuaging voter outrage over the state of the American economy, and both parties are searching to allocate some blame. Enter Ben.
Keeping pace with the Fed's dual mandate, it is the chairman's responsibility to both curb inflation and drive unemployment down to its natural rate. Unfortunately, policy options that tame unemployment often drive up inflation, and vice versa. The Federal Reserve is responsible for toeing the fine line between the two. For the last few years, that's been even harder.
The Fed has already enacted two rounds of quantitative easing through large scale asset purchases (LSAPs), designed to lower interest rates and stimulate growth. Interest rates have been bottomed out for months, though, and the Fed's economic projections are still grim. The Federal Open Market Committee now must decide to either take more action immediately or give the market more time to correct.
This situation puts policymakers in a dilemma. Conservatives hate the idea of enacting further quantitative easing, for fear of its inflationary danger and possible ineffectiveness. Many liberals believe that more action was desperately needed long ago, perhaps on a larger scale. Political tradition dictates that no matter what course Bernanke and the Fed take, they will be forced to shoulder the responsibility for America's stagnation.
The decisions made by the Fed won't be announced until after the FOMC meeting on Sept. 13. Bernanke, however, already sealed his fate at the Federal Reserve's annual meeting in Jackson Hole, Wyo. Bernanke hinted strongly that new Fed intervention may occur, given the 'far from satisfactory' nature of the economy.
Regardless of whatever course of action the Fed decides to take, a storm of political blame is soon to rain down on the Federal Reserve and its leadership. If the Fed does choose to take action on Sept. 13, the Republican party will decry its actions as overly interventionist. Democrats will claim that the Fed should have acted sooner and more decisively.
No matter what tactics the FOMC decides to employ, the strategy will undoubtably be weighed most carefully. Scrutiny is set to ensue from both sides of the aisle, evidencing the ignorance and short-sighted nature of political dialogue in America.
It's not a crime to reflect on the decision-making process of the Federal Reserve, but politicians are certainly not in a position to harangue Fed officers for thier choices. The Federal Reserve's Board of Govenors is one of the most qualified groups of economists in the world today, and time and again they have demonstrated a judicious use of monetary policy tools. The reality of a complex global economy makes policy decisions anything but black and white. At the end of the day, decisions have to be made, often without the luxury of universal consensus.
Legitamacy is another major concern. Bashing the Federal Reserve's actions for political expediency is extremely foolish. Without credibility, the effectivness of Fed policy can be hampered. While economic conditions leave something to be desired, blaming a well-intentioned Fed for policy and regulatory failings of past administrations is misleading at best, and at worst an outright lie.
Swift and deliberate action from the Federal Reserve saved the nation from grave consequences in 2008. The Fed's ability to overcome implementation lags that hinder Congress makes it integral to economic stability.
Politicians need to find a different whipping boy.
— Blair Kuykendall is a senior in College Scholars. She can be reached at email@example.com.