The Right Move

09.13.12

The Fed Acts, Finally

Yesterday, in Wisconsin, Paul Ryan told an audience that he thought a QE3 would do "more harm than good." The harm he really means, of course, is that a new round of easing would likely help reelect Barack Obama.

So now comes QE3, and it seems that everyone except the gold standarders and committed Republicans and Jeffrey Lacker, the only FOMC member who voted against today's measure and who's always voting and speaking against this sort of thing according to the minutes I read, is ecstatic. I'm not an expert but I'd say $40 billion a month in mortgage securities--not for six months, not for a year, but for as long as it takes--is pretty ballsy in this environment. Felix Salmon explains what the lack of an expiration date means:

The Fed’s not trying to kick-start the economy any more: instead, it’s promising a steady extra flow of monetary fuel for the foreseeable future — or at least until the labor market improves “substantially”. Which is likely to be a pretty long time.

That would be a big enough deal on its own, but the Fed went even further in the following paragraph, where they all but promised zero interest rates until mid-2015.

Republicans are piling on in the expected ways. Romney calls it another "bailout." I'd watch that word if I were he; that word is no friend of his (oh, by the way--Obama is up 10 in Michigan). The obvious and banal complaint, that the timing is suspicious right before an election, is hardly more persuasive. There isn't really time between now and Nov. 6 for this move to have a huge impact on the economy. If Bernanke wanted to influence the election he'd have done this in the summer.

Republicans can yelp and yap all they want. This is the right thing to do. There is a struggling economy out there. Inflation is low, unemployment is high, so QE3, QED. If Republicans want to be in the position of opposing an effort by the Federal Reserve Bank to lower the jobless rate, that's their problem. And I know we're not supposed to discuss politics in Fed decision-making, and I'm sure the FOMC acted on the merits. But Ben Bernanke is a human being. You have to wonder how tired he got of trudging up to the Hill and getting hectored by those great 17th-century minds in the congressional GOP. He can't say such things in public, but he knows who the problem is.