Republican leaders in Congress are trying to push the Federal Reserve towards inaction (and simultaneously demonstrating why the Fed was designed to be somewhat independent from Congress) via a stern letter to Chairman Ben Bernanke and the rest of the Federal Open Market Committee. (Read full text below).
In an effort to help my former colleagues at the Fed, I’ve put together some quick pointers to answer the demands from the letter, namely the following:
“Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.”
Obviously, they should feel free to elaborate…
1. “Goals:” To increase the growth rate of GDP, reduce unemployment, and prevent a deflationary spiral that would damage the recovery or create a double-dip recession.
2. “Direction for success:” Not sure what the heck this means. But the theory is that monetary intervention — through an interest rate channel or other — will lead to greater business investment and consumer spending, yielding more demand, higher GDP, and lower unemployment consistent with the overall goals in No. 1.
3. “Ample data proving a case for economic action:” Fourteen million people unemployed and the unemployment rate at 9.1 percent. Zero payroll employment growth in August. A jobs gap of 11 million. GDP growth of 1 percent in 2011Q2; 0.4 percent in 2011Q1. Employment/population at 58 percent. A staggering 4.3 unemployed workers for every job opening. Poverty at 15 percent. Median incomes fell by over $1,000 in 2010, have fallen by over $3,000 since 2007, and are lower than they were in 1997. Shall I go on?
4. “Quantifiable benefits to the American People:” More jobs, higher incomes, lower poverty, more innovation and investments, higher corporate profits, more hot dogs consumed at baseball games, lower mortgage rates. The Fed’s got better macro models, I’ll let them do the actual quantification.
Full text of letter:
Dear Chairman Bernanke,
It is our understanding that the Board Members of the Federal Reserve will meet later this week to consider additional monetary stimulus proposals. We write to express our reservations about any such measures. Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.
It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitated economic growth or reduced the unemployment rate. To the contrary, there has been significant concern expressed by Federal Reserve Board Members, academics, business leaders, Members of Congress and the public. Although the goal of quantitative easing was, in part, to stabilize the price level against deflationary fears, the Federal Reserve’s actions have likely led to more fluctuations and uncertainty in our already weak economy.
We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers. To date, we have seen no evidence that further monetary stimulus will create jobs or provide a sustainable path towards economic recovery.
Ultimately, the American economy is driven by the confidence of consumers and investors and the innovations of its workers. The American people have reason to be skeptical of the Federal Reserve vastly increasing its role in the economy if measurable outcomes cannot be demonstrated.
We respectfully request that a copy of this letter be shared with each Member of the Board.
Sen. Mitch McConnell, Rep. John Boehner, Sen. Jon Kyl, Rep. Eric Cantor