Sunday, June 10, 2012
THE next meeting of Federal Reserve policy makers, on June 19 and 20, will probably be contentious. The latest employment report, showing anemic job growth for a third consecutive month and an uptick in unemployment, will surely make some Fed members want to take additional expansionary action. Others, however, appear steadfastly opposed.
The argument for additional monetary action is straightforward. By law, the Fed is supposed to aim for maximum employment and stable prices. But the unemployment rate is 8.2 percent — a good two percentage points above what even the most pessimistic members say is its sustainable level. Moreover, the spate of disappointing data and the deepening crisis in Europe make continued weakness all too likely...
Some Fed members contend that monetary policy has already done its share. Other policy makers, they say, need to step up. Both the Fed’s chairman and its vice chairwoman have talked about the need for additional near-term fiscal stimulus as part of a gradual deficit-reduction plan. And many Fed committee members have called for a more aggressive housing policy. Indeed, the Fed raised some hackles in January when it sent an unbidden white paper to Congress, outlining possible administrative and legislative initiatives to deal with problems like foreclosures and underwater homeowners.I agree that we need more effective fiscal and housing policies. But neither is likely to happen, at least not before the presidential election. As a result, the Fed is the only plausible source of immediate help for the American economy. It was set up as an independent body precisely so that somebody can do what’s right when politicians can’t or won’t.