The person best able to bring back jobs to unemployed Americans spent Thursday trying to keep his own job.
Ben Bernanke had to justify another four-year term for himself as chairman of the US central bank before a skeptical Senate Banking Committee. It now looks as if he'll get to keep his gainful employment, but the grilling of the Federal Reserve chief on Capitol Hill only shows why he – more so than the one-day "jobs summit" at the White House – is the government's best hope to spur private-sector hiring.
The Fed has already poured more than $1 trillion of newly printed dollars into the economy since 2008, kept interest rates near zero, and saved many faltering but "too big to fail" financial institutions. Now it is using its immense powers as a regulatory agency to squeeze banks and others to start lending to small businesses – the nation's largest source of new jobs, especially during a recovery.
While Congress debates tax credits for employers or whether to spend more in another stimulus package, it is the Fed that will best drive the economy back to prosperity. That explains the political pressure on Mr. Bernanke to commit to a stronger-than-usual jobs-creation policy from members of Congress who face voters next year.
"Jobs are the issue right now," the Fed chief told the senators.
Indeed, the worst unemployment rate is among young blacks – about 30 percent – while the jobless rate for people between 16 and 24 is a high 19 percent. More than 8 million private-sector jobs have been lost since the recession began in late 2007. With the rise in government red ink becoming a risk to the economy itself, all eyes turn to the Fed and its ability to regulate and raise money as the main way to stoke the job market.
Congress is so worried about fixing the economy quickly that some members want to put pressure on the Fed by reducing its independence. They want to make sure it puts job creation ahead of its other duty – preventing inflation and stabilizing prices by raising interest rates.
One idea that has passed a House committee is to set up an outside audit of the Fed by the Government Accountability Office (GAO). A Senate bill would strip the Fed of its regulatory responsibilities over large financial institutions.
Yet Fed independence is essential to the economy, as investors look to its professionals, more than politicians, to keep a steady hand on monetary policy and on banks. If anything, the threat that such bills pose will only add to the uncertainty among investors and hinder job growth.
Job creation right now is at risk, Bernanke said, because the number of small businesses reporting difficulty in obtaining credit is near a record high. And many employers have resorted to putting employees on part-time work or shorter hours, a move that may slow job creation if businesses get used to such a practice.
He has ordered the Fed's bank examiners to muscle banks into boosting their lending. This often requires an examiner to tell a bank that it should value a property used as collateral higher than it may want to. The Fed is also reviving the market for the bundling of loans for small businesses. And it is bending the arms of potential investors to put more capital into banks to increase credit.
Such steps need support from Congress, not a badgering of the Fed for its past mistakes or a threat to trim its clout.
And by the way, as the nation's chief finger-wagger over banks and because of his rescue of the financial system a year ago, Bernanke deserves a quick confirmation by the Senate.