Source: The Wall Street Journal
The Federal Reserve’s latest big move to help the economy comes in the midst of an election campaign, provoking criticism from Republicans and cheers from congressional Democrats.
The dueling reactions were a reminder that—despite Fed Chairman Ben Bernanke’s insistence that the Fed is looking exclusively at the economy—the central bank has been drawn into politics more than at any time in the past 30 years.
Some Republicans were quick to chastise the Fed. Rep. Scott Garrett of New Jersey called the new round of bond-buying “radical and unprecedented.” Sen. Bob Corker of Tennessee said Mr. Bernanke “is beginning to do serious damage to the Fed as an institution.”
Fed chief Ben Bernanke defends its decision Thursday in Washington.
Other Republicans tried to use the Fed’s decision as a cudgel against President Barack Obama. Rep. Kevin McCarthy of California, the No. 3 House Republican, said the Fed move shows that Mr. Obama’s policies have “failed miserably.” House Financial Services Committee Chairman Spencer Bachus, of Alabama, called it a “scathing indictment” of Mr. Obama’s job-creation policies.
The criticism from Republican presidential candidate Mitt Romney, who previously said more bond-buying by the Fed would be the “wrong way to go,” was more tempered. Lanhee Chen, Mr. Romney’s policy director, described it as “artificial and ineffective,” and added, “We should be creating wealth, not printing dollars.”
The White House, as is its custom on Fed actions, declined to comment. But congressional Democrats leaped to the Fed’s defense. Senate Banking Chairman Tim Johnson of South Dakota called it “encouraging.” Sen. Chuck Schumer of New York said the Fed was “fulfilling its obligation.” Massachusetts Rep. Barney Frank said, “Republicans… are clearly upset that they were unable to intimidate the Fed into putting partisan politics ahead of national economic interests.”
Fed officials worry about undermining the central bank’s independence to make monetary policy without political interference. Mr. Bernanke, like his predecessors, has labored to protect that independence. He also has tried to avoid taking sides in skirmishes between Democrats and Republicans. He and his colleagues know any Fed action or inaction less than two months before a presidential election will be scrutinized for political implications, but Mr. Bernanke on Thursday said politics wasn’t a consideration.
Federal Reserve Chairman Ben Bernanke addresses three main concerns people have about the Federal Reserve’s monetary policy; Fed purchases, low returns and inflation of the economy. Photo: Getty Images.
“We have tried very, very hard, and I think we’ve been successful…to be nonpartisan and apolitical,” Mr. Bernanke said at a news conference. “We make our decisions based entirely on the state of the economy….So we just don’t take those [political] factors into account. And we think that’s the best way to maintain our independence and maintain the trust of the public.”
In his opening statement at the news conference, Mr. Bernanke went to unusual lengths to preemptively defend the Fed actions, emphasizing the harm done by high unemployment, acknowledging that very low interest rates hurt savers and insisting that Fed bond-buying isn’t the same as government spending.
Criticism of the Fed and its monetary policy by elected politicians isn’t new. Decades ago,Fed Chairman Paul Volcker drew fire for the high interest rates he engineered to fight inflation in the 1980s. His successor, Alan Greenspan, was criticized for not lowering rates faster in the 1990s. But the global financial crisis—and a series of Fed-led rescues of Wall Street—have made the Bernanke Fed a much bigger target, and for a time even threatened Senate confirmation of Mr. Bernanke’s second term.
Attacks on the Fed swelled during the Republican presidential primary campaign, partly because they provided a forum for perennial Fed critic Rep. Ron Paul (R., Texas). During the primaries, Mr. Romney said he would replace Mr. Bernanke. The Fed chairman’s term is up in January 2014 and, though he declined to discuss it at Thursday’s news conference, he isn’t expected to seek a third four-year term.
“A large part of it was Ron Paul’s presence in the primaries,” said former Dallas Fed President Bob McTeer, now a fellow at the National Center for Policy Analysis, a right-leaning think tank. “It seemed to be resonating so much that all the others felt like it wouldn’t do them any harm to get on board with bashing the Fed.”
Kevin Hassett, a former Fed staff economist now at the American Enterprise Institute, a conservative think tank, and a Romney adviser, said: “It used to be easy” for Republican presidential candidates: “They would say ‘I respect the Fed’s independence’ and be done with it.”
Now, public resentment of the Fed has turned the central bank into a political punch line. “You can’t avoid discussing the Fed anymore,” Mr. Hassett said.