Bernanke's bold move: good policy – or politics?

Fed Chairman Ben Bernanke's says economics dictated the central bank's bold actions. But by acting so close to the election, he risks accusations that he's playing politics.

Manuel Balce Ceneta/AP/File
Federal Reserve Chairman Ben Bernanke speaks during a news conference in Washington on Thursday, following the announcement of bold actions to support the economy. Mr. Bernanke runs the risk of being accused of influencing the election because of moves so close to the election.

The Federal Reserve under Chairman Ben Bernanke is trying to help the economy by doing something President Barack Obama and Congress can't and which Mitt Romney opposes: electronically creating money, mostly out of thin air.

The Fed says it will "buy" $40 billion a month in mortgage bonds until stubbornly high unemployment eases substantially. The Fed's new move is on top of its $85 billion-a-month purchases of Treasury securities under an existing program.

It hopes to hold down long-term interest rates long enough to stimulate more private-sector borrowing and hiring.

Democrats generally welcomed the step, although Obama's camp won't comment on Fed actions. Republicans called it further confirmation that Obama's policies are failing.

"The president's saying the economy's making progress, coming back. Bernanke's saying, 'No, it's not. I've got to print more money,'" Romney told ABC.

If elected, the Republican says he won't reappoint Bernanke when his chairman's term expires in January 2014.

The Fed has kept a key short-term rate — on loans between banks — near zero for over three years and pumped hundreds of billions of dollars into the financial system.

Fed chairmen risk being accused of playing politics so close to a presidential election. "We make our decision based entirely on the state of the economy," Bernanke insisted.

Democrats still blame Fed Chairman Arthur Burns for over-stimulating the economy in 1972 to help President Richard Nixon. President George H. W. Bush partly blames his 1992 defeat on tight policies of Fed Chairman Alan Greenspan.

Greenspan's later more market-friendly policies likely helped President Bill Clinton's 1996 re-election.

Bernanke's move carries big risks. Many economists doubt it will have the desired effect — and could trigger high inflation down the road.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.