If Federal Reserve Chairman Ben S. Bernanke fails this week to announce new measures to stimulate the U.S. economy, he’d better have a good reason. We can only think of a bad one, and we urge Bernanke to refute it explicitly.
For weeks, Bernanke has been signaling to the financial markets that he will act. If he fails to follow through when the Fed’s policy-making committee meets Sept. 13, it will probably be because, with the presidential election coming in November, he wants to shield the Fed from the charge that it’s doing the Obama administration’s bidding. That’s the bad reason he should confront and dismiss.
At the central bankers’ conference Aug. 31 in Jackson Hole, Wyoming, Bernanke said that quantitative easing -- the Fed’s policy of buying bonds to lower interest rates -- has boosted the recovery and, though it’s no magic cure, can work again. When the Fed engages in “large scale asset purchases,” as it calls them, it affirms its commitment to keep monetary conditions loose. Two previous rounds of quantitative easing, according to Fed economists, raised economic output by almost 3 percent and created more than 2 million private-sector jobs.
Nonetheless, the recovery continues to flag. Last week’s disappointing jobs figures were only the latest sign of a subpar expansion. Bernanke insists that the Fed takes its dual mandate seriously, striving for full employment as well as low inflation. So with weak growth, persistently high joblessness and no sign of mounting inflationary strain, the case for more quantitative easing is airtight, so long as the Fed believes it can help.
Almost two-thirds of economists surveyed by Bloomberg expect Bernanke to announce a third round of quantitative easing. We hope they’re right, and hope too that the Fed, for the first time, makes its program open-ended. There’s no need to announce a limit on the scale of planned purchases. The Fed should say it will begin a new round of stimulus and will maintain its efforts to support demand until economic conditions show clear signs of improvement.
Bernanke can expect to be criticized for doing the right thing. Hostility to the Fed’s efforts to spur the recovery -- restrained as the efforts have been in recent months -- is a theme in Republican Mitt Romney’s presidential campaign. There’s talk of tougher audits and other ways of tying the Fed’s hands. Romney that, if elected, he won’t reappoint Bernanke to the Fed when his term ends in January 2014 unless he behaves more “responsibly.”
If Bernanke goes ahead with QE3, as we expect, he’ll probably take care to swerve away from these attacks. His style is to avoid controversy -- a low-key approach that in this case could undermine his policies by casting them in overly timid terms. Instead, he ought to be bold in two ways. First, he should assure markets that the new round of easing will be powerful enough to work. Second, he should turn the pressure back on Washington to break its policy paralysis and lift the threat of the so-called fiscal cliff, a combination of growth-killing tax increases and spending cuts that will come into force at the beginning of 2013 unless Congress acts.
Bernanke is quite right to say, as he often does, that monetary policy can’t do it all. But there are two ways to make that necessary point. It can be cast as an apology for failing to get the economy moving and a warning not to expect much progress, or as a criticism of Congress’s failure to do its job. Bernanke should dial back the apology and take on his critics.
In particular, Bernanke ought to confront the complaint that QE3 . That’s nonsense, and he should explain why. He’s acting to save the economy, not the president. If he chose not to act, when the objective economic case for action is so strong, the charge of improper political influence would actually be true. He would be setting his mandate aside because an election was two months away.
You can bet that would be grounds to condemn Bernanke’s economic stewardship. He shouldn’t say sorry for doing his job.
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