Bernanke To GOP Critics: It's Jobs, Not Inflation, Stupid

Agustino Fontevecchia
Bernanke To GOP Critics: It's Jobs, Not Inflation, Stupid

Fed Chairman Ben Bernanke took a stab at the GOP in his press conference on Wednesday, essentially asking those who criticize him to get their argument right.  Inflation has been under control, said Bernanke, so it’s job creation they should be criticizing the Fed about.

In his latest press conference appearance, Ben Bernanke struck back at Republicans for criticizing his Fed’s extraordinarily accommodative stance.  In response to a question by Steve Leisman of CNBC, Bernanke said “politics is politics” and then added “the Fed tries to remain non-partisan.”

Leisman’s question was about a letter sent by the Republican leadership back on September 19, where they urged the Fed Chairman to refrain from further quantitative easing and additional monetary stimulus.  “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,” read the letter signed by Senators Mitch McConnell and Jon Kyl, and Representatives John Boehner and Eric Cantor.

After dismissing the question of whether the GOP was overstepping its boundaries by telling the Fed what to do, Bernanke actually responded to the criticism.  The bearded academic noted that concerns regarding monetary accommodation’s inflationary effect hadn’t been on target. Looking back at inflation, the Fed’s QE programs have managed to avert deflation and actually maintain it fairly stable, according to Bernanke.

Instead, the GOP, and anyone criticizing the Fed and Bernanke for that matter, should focus on the other part of the dual mandate, fostering maximum employment, the Chairman said.  At the same time, Bernanke also noted that while the Fed’s doing their best to promote job growth, “it would be more helpful if we had help from other parts of the government to create jobs,” taking another stab at the political establishment.

At another point in the Q&A, Bernanke said the European sovereign debt crisis and the debt ceiling debate in the U.S. fueled volatility and weighed on business and consumer confidence.  In other words, not only is the GOP criticism wrong, but the GOP, along with President Obama and the Democratic leadership, have actually made the economy worst with their bickering.

Another contentious point in the GOP letter, the strength of the U.S. dollar, made its way into Bernanke’s remarks.  “[More QE] may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers,” reads the letter.  In his press conference, Bernanke noted that record low Treasury yields indicate investors’ desire for the liquidity and safety of Treasuries, indirectly highlighting the U.S. dollar’s reserve currency and safe haven status.

Finally, Bernanke noted he was ready to pump more QE into the economy as soon as inflation levels drop below the Fed’s comfort-range of 2% or a little less, or once growth faltered to the point where they are forced to act.  The Fed has only two tools at this point, Bernanke noted, asset purchases and communication (which is to say the Fed’s capacity to manage expectations).

If, as Goldman Sachs’ head economist Jan Hatzius believes, the economy slows almost to a stop in the first quarter of 2012, then it appears that Bernanke will unveil a third round of quantitative easing.  With the European situation continuing to deteriorate, as MF Global’s failure shows, it seems difficult that the U.S. may escape unscathed.  And with major banks so battered, JPMorgan Chase is down more than 20% this year while Citi dropped almost 40%, it’s hard to imagine credit creation, and credit demand, coming back anytime soon.