By Clive Crook
Published: March 27 2011 20:06
.
.
Ben Bernanke, chairman of the Federal Reserve, chose an interesting moment to announce, as he did last week, that the Fed will depart from tradition and start holding quarterly news conferences. The first is scheduled to follow the next meeting of the Federal Open Market Committee on April 27. The Fed chief will not be short of things to discuss.
Unless common sense intervenes – rarely a winning bet in Washington – the US government will run up against its statutory debt ceiling in late April or May. The prospect of a government shutdown, and even of a default on US government debt, could be imminent. In addition, the Fed’s controversial bond-buying programme – QE2, as it is known – is due to end in June and questions arise about what, if anything, will replace it. There are grumblings about bank profits. There are grumblings about inflation. Analysts want to know what the Fed proposes to do about the $2,000bn of bank reserves on its balance sheet.
Meanwhile, Fed-bashing is again all the rage on Capitol Hill. Many Republican newcomers to the House of Representatives want the central bank brought to heel.
Public opinion is hardly rallying to the Fed’s defence. Mr Bernanke is no hero to the US public – though he probably should be. Voters think the central bank is partly to blame for the “Great Recession” (which is true, though the big mistakes were on Alan Greenspan’s watch) and that its efforts to stabilise the economy have failed at ruinous cost (which is false).
One can see why the Fed wishes to speak up on its own behalf. Greater openness about the Fed’s deliberations ought on balance to be a good thing. Economists have long called for it. Other central banks, including the Bank of England and the European Central Bank, take questions from the press about policymaking. This a rare instance of a US arm of government being less open than its European counterparts.
But remember two things. First, in the US, the decisive interventions that stopped the recent recession from turning into something much worse were made not by Congress or the Treasury, but by the Fed. Second, those interventions were not exclusively “monetary” – thus falling within the terms of the classical case for central-bank independence – but quasi-fiscal.
It had to be that way because of the flailing incapacity of the legislative branch. The fiscal stimulus of 2009 was, if anything, too small; the troubled asset relief programme, bitterly controversial from the start, was initially ill-designed. These policies were the most Congress would assent to explicitly. So other, and bigger, interventions had to be guided around it. The Tarp was repurposed, more than once, without new legislative authority. But the biggest evasion by far was to have the Fed bail out financial institutions by taking immense quantities of questionably collateralised debt on to its balance sheet. That was fiscal policy, not “lender of last resort”.
A constitutional purist, even one persuaded of the case for central bank independence, would say that the Fed exceeded its proper role. A pragmatist would say, thank heaven it did.
By constitutional design, the US has no decisive fiscal policymaker. Sometimes one is necessary, and on a grand scale. In 2008 and 2009, the Fed stepped in. The central bank’s mystique – the very complexity of its role and operations – and its distance from the dysfunction in Congress allowed Mr Bernanke to do what Treasury and Congress ought to have done. The interventions steadied the economy and started the recovery. They will end up costing taxpayers nothing. By every commonsense measure, what the Fed did was right. Try telling that to the House of Representatives.
One problem for a more open Fed is that it cannot be entirely frank about what just happened. The truth is, it bent the rules. Another is that it runs the risk of being drawn further into US politics, a hazardous place for it to be.
If Congress fails to raise the debt ceiling before the end of April, Mr Bernanke will doubtless emphasise at that first news conference the risks to the economy of leaving the issue unresolved or, worse, of allowing the ceiling to be reached. He has said as much already, but now it will be with a higher profile. Of course, he will be right. But he will be directly contradicting the Republican congressmen who argue that the ceiling should not be raised, and that allowing it to be hit would be a salutary experience.
Until now, the Fed’s quantitative easing has attracted little Congressional scrutiny. By buying government bonds, the central bank has eased monetary policy even with interest rates at their zero bound. Again, it was right. Some Republicans see the policy as inflationary – and their concerns are not crazy, because the eventual unwinding of the policy could pose some difficulties. However, with inflation expectations currently very low, this is no time to be tightening monetary policy. In fact, when QE2 ends in June, QE3 should start. Suppose Mr Bernanke agreed. Would a more prominent public voice make this easier, or more difficult?
It depends on how persuasive the chairman proves to be. If you engage the public’s attention, you had better engage its support. Unfortunately, central banking under US conditions is not an easy subject to explain. Preserving the Fed’s anomalous but necessary freedom of macroeconomic action will be quite a test.
.
Copyright The Financial Times Limited 2011.
0 comments:
Publicar un comentario