Federal Reserve Chairman Ben Bernanke announced a radical new policy the Fed will being using. The new policy is getting unprecedented support, but it is so far afield from past policies it may take many off guard. Federal Reserve Bank of Richmond president Jeffrey Lacker was the only Federal Open Market Committee member that didn’t vote for the new policy and he has opposed it for months. The new policy ties interest rates to specific economic metrics for inflation and unemployment. The Fed also moved to increase bond purchases in an effort to lower long-term interest rates.
How It Will Work
The new policy includes interest rate tests that will keep rates low as long as the unemployment rate stays above 6.5%. Charles Evans, the President of the Federal Reserve Bank of Chicago has been lobbying for metrics like this for almost a year and said in a 2011 speech, that inflation hawks “would be acting as if their hair was on fire” if inflation got too high. “We should be similarly energized about improving conditions in the labor market,” he said. Ben Bernanke said that high unemployment is “an enormous waste of human and economic potential.”
The Fed has come to the rescue of fiscal problems that have eluded our legislators, stepping in last November to help avert a repeat of a financial catastrophe like we saw in 2007 and 2008. When congress can’t solve the issues, the Fed is sometimes the only other entity that has the ability to impact the economy in a major way through its policies. Sometimes simply enabling banks to maintain access to funds is enough to keep the wheels of progress moving and that is one thing the Fed can do, and has done in the past.
Opinions Vary
Economists and bankers across the country are praising the Fed for finding creative ways to aid the economy. However, not everyone is a fan and Chief Economist of First Trust Advisors, Brian Wesbury said , “I wish the Fed would just go away.” American commodity trader Jim Rogers was even harsher in his criticism, saying, “Ben Bernanke couldn’t manage a corner lemonade stand let alone the U.S. financial system.”
Fed to the Rescue
Whether politicians can get their collective act together or not, the Federal Reserve seems to be acting as Americans’ backstop to keep the countries fiscal health intact. Most Americans pay about as much attention to the work of the Fed as they do to politicians, which is little or none. The fact that the Feds new policies are groundbreaking is of absolutely no concern to everyday Americans, but every American stands to benefit from the policies if they are implemented as the Fed envisions them.
We will see what happens when the rubber hits the road, which is when the policies go into effect and there is some measure of their effectiveness. If the policies are effective nobody will care that the Fed had to essentially save our bacon, but if the policies are ineffective people will be equally disinterested in the mere fact that the new policies are unprecedented.
