Ben Bernanke’s frustration with U.S. law makers’ failure to come up with fiscal policies to complement his efforts to shore up the American recovery is unlikely to abate, since the chances of bold political co-operation during a presidential election year are slim to none.
But he should have an easier time keeping Federal Reserve officials onside with his strategy for monetary policy.
For three years, much of the criticism levelled by Republicans in the U.S. Congress against Mr. Bernanke’s extraordinarily low interest rates and unconventional monetary policies (namely, the Fed’s creation of hundreds of billions of dollars to buy financial assets, a strategy commonly called quantitative easing) was backed up by a minority of Fed officials who publicly questioned Fed strategy on a regular basis.
There will always be some internal discomfort with Fed policy, either from within the policy-setting Federal Open Market Committee or from non-voting officials serving as regional governors, for instance. This is entirely fitting for a central bank that publishes minutes of its policy meetings, and which soon will take transparency to a new level by publishing each voting member’s forecast for interest rates.
Still, speeches Tuesday by two of the Fed’s newest voting officials highlight that Mr. Bernanke’s camp -- which has generally been more willing to entertain thoughts of more monetary stimulus, especially with the economy getting little help from paralyzed lawmakers in Washington -- has grown.
Speaking Tuesday morning in Vancouver, Washington, John Williams -- who runs the Fed’s largest regional bank, based in San Francisco -- said it is “vital that the Fed use all the tools at its disposal to achieve its mandated employment and price stability goals,” according to an account by Bloomberg News.
Mr. Williams, a top economic official in President Bill Clinton’s administration, also lobbed a thinly veiled barb at intransigent politicians, saying Fed officials are “doing everything we can to move the economy forward,” and that the central bank needs an assist from complementary “tax and spending policies.”
About 45 minutes later, in Wooster, Ohio, Fed Bank of Cleveland President Sandra Pianalto -- who like Mr. Williams becomes a voting official later this month -- said the recovery in the world’s biggest economy still faces headwinds ranging from a “depressed” housing market to the European debt crisis, and called the rebound “frustratingly slow.” Both she and Mr. Williams see the economy growing somewhere between 2.5 per cent and 3 per cent this year -- not enough to bring unemployment down quickly enough for policy makers to rule out a fresh jolt of stimulus.
Significantly, both Ms. Pianalto and Mr. Williams pointed out that they do not see inflation -- which was stubbornly high for much of 2011, limiting Mr. Bernanke’s room for maneuvering -- being an issue this year. Ms. Pianalto even told her audience that the outlook for inflation is “pretty good,” now that the lofty commodity prices of last spring and summer have eased. That may be obvious, given the world’s slow, grinding and uneven crawl back to normal from the worst downturn since the Great Depression. Still, comments like that will help Mr. Bernanke counter the claims of hawks on Capitol Hill (not to mention Republican presidential candidates) who argue his policies risk stoking runaway, uncontrollable price gains.
Recent assessments by other key Fed officials have ranged from similarly dovish to non-committal about more stimulus but nonetheless open-minded, Derek Holt of Scotia Capital noted in an analysis Tuesday morning.
The U.S. economy is slowly but surely showing signs of improvement, underscored by a 200,000 gain in employment last month and a drop in the jobless rate, to a still-way-too-high 8.5 per cent. Don’t expect anyone on the campaign trail in the Republican primaries to give Mr. Bernanke credit, especially Ron Paul -- who has railed against the Fed and seeks to radically reduce its powers -- or Rick Perry, who early on suggested Mr. Bernanke deserved a “lynching.”
Inside the Fed, though, what must often feel like a lonely job promises to be less so.