What Part of the Fed Fulfilling Its Mandate is "Delicate?"

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Thursday, 30 August 2012 04:39

An article reporting on the Commerce Department's release of data showing a small upward revision in second quarter GDP told readers that Federal Reserve Board Chairman Ben Bernanke faces a "delicate decision" in deciding whether to take further steps to boost the economy. While the piece notes the economy's continuing weakness, it tells readers:

"More aggressive steps to stimulate the economy will also draw criticism from Republicans, who have demanded that Mr. Bernanke forswear additional monetary moves for now."

While it might be beneficial to the Republicans to have a weak economy over the next two months, it is not Bernanke's job to help them win the election. The Federal Reserve Board is supposed to target full employment and price stability. Since there is no evidence whatsoever of significant inflationary pressures in the economy, the Fed should be focused on the full employment part of the mandate.

The Fed's charter does not say anything about not boosting the economy in a context where its actions could have an impact on the election. There can be little dispute that the economy is operating well below full employment which means that the Fed should be focused on increasing employment, even if the Republicans don't want to see more job growth before the election. (As a practical matter, the Fed's actions at its next meeting in mid-September are unlikely to have a noticeable impact on the economy by the election.)