A big test of the seriousness and worthiness of our Democratic senate candidates will be the extent to which they comment on recent news related to the Federal Reserve Board’s Federal Open Market Committee’s recent decision to do some more quantitative easing.
First of all, we had Republican leadership discouraging the Fed from any more monetary stimulus. Not surprisingly, the big criticism has been that politicians shouldn’t be trying to influence the Fed. That’s bunk. The Fed is isolated from political repercussions, there is no reason that politicians should not be encouraging their policy preferences. The real problem is that the Republican position is a big screw-you to the unemployed. Don’t intervene in the economy means don’t improve short-term job prospects.
Then, there is the FOMC action. There’s some additional quantitative easing: purchases of medium term bonds to further lower long-term interest rates. Ostensibly, that will spur long-term investment, which will translate into jobs. Meh.
Money’s already dirt cheap and corporations are sitting on tons of it. The issue isn’t the cost of investing, it’s the lack of any expected benefit. The problem is demand. Companies aren’t investing, because consumer demand is low. Consumer demand is low because of debt overhang.
What could the Fed do? Work more aggressively to meet both ends of its mandate: price stability and full employment. Prices are too stable, inflation is below its target. A little inflation will help cure the debt overhang and stimulate the demand that’s going to get growth employment and employment going. A little catch-up inflation (to catch up to prices where they would be if we’d had 3-4% inflation over the last few years) would really goose things.
But, the Fed’s comment: we expect prices to remain stable and employment to be slow to grow. Not. Acceptable.
Free unsolicited advice to Senate candidates: jump ugly all over Republican leadership — the leadership of Scott Brown’s party — for their misguided economic priorities. Encourage a monetary policy that is more expansionary.
Wonky? Sure. But, in a time of high national unemployment, we should expect our U.S. Senators to be experts on monetary policy and its impact on joblessness.
