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Suddenly, Bernanke's Fed is a favorite punching bag. Why the pounding?

Ben Bernanke and the Fed are being lambasted, especially by GOP lawmakers, over policies to stimulate the economy. Some worry the criticism will sap the Fed's effectiveness.

By Ron SchererStaff writer / December 1, 2010

Ben Bernanke (r.), chairman of the US Federal Reserve, and European Central Bank President Jean-Claude Trichet arrived at a banking conference in Frankfurt Nov. 19. Critics question Mr. Bernanke's Fed policies.

Kai Pfaffenbach/Reuters

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New York

The venerable Federal Reserve is in the political cross hairs for the first time since the 1980s, when irate people mailed two-by-fours to then-Chairman Paul Volker to protest interest rates hitting 20 percent.

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Criticism of Fed efforts to stimulate the economy and promote job creation is coming in waves – from Congress to cartoons, from foreign leaders to former Republican officials.

Some of the fight is ideological, laced with arguments that the Fed's effort to reduce America's unemployment rate is usurping the powers of Congress and the president. Some of it is being waged on economic grounds – that the Fed is setting the stage for a bad bout of inflation once the economy hits its stride again. And some foreign countries, namely China and Germany, suggest Fed policy is actually intended to lower the value of the dollar, which would make American exports more appealing.

Criticism of the Fed has even hit YouTube.com. A cartoon on the site implies that the central bank is run by people who don't understand economics. As of Dec. 1, the video had been watched 3.1 million times.

Hit from many sides, the Fed seems to have become the latest punching bag for those who believe the United States has taken the wrong course to economic recovery. Though criticism of the Fed is not new, the intensity level is the highest in recent memory, say former Fed officials.

"I've never seen the degree of politicization of the Fed like this," says Lyle Gramley, who served in the Reagan era as one of the seven Fed governors. "It's very worrisome."

Fed-flogging has increased since the central bank's Nov. 3 announcement that it would try again to stimulate the economy by buying $600 billion in Treasury bills. The Fed hopes its purchases will prevent deflation, during which prices fall, and reduce long-term interest rates enough so that businesses will expand, adding as many as 1 million jobs during the next two years. This policy, termed quantitative easing II, or QE2, differs from the Fed's normal policy of setting levels for short-term interest rates.

Much of the criticism comes from Republicans. On Nov. 4, the four top GOP congressional leaders wrote Federal Reserve Chairman Ben Bernanke, contending that the further monetary easing "could result both in hard-to-control, long term inflation and potentially generate artificial asset bubbles that cause further economic disruptions."

Then, on Nov. 18, former GOP vice-presidential candidate Sarah Palin, in a letter to the editor of The Wall Street Journal, called for the Fed to "refudiate" the "notion" that printing $600 billion "out of thin air will magically fix economic problems...."

Democratic leaders worry that the criticism will empower Federal Reserve governors who may disagree with Mr. Bernanke. Once any disagreement becomes public, it could shake the markets or, worse, make the Fed ineffective.

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