Congressional Republicans have been critical of the Fed’s loose monetary policies for quite some time. Today, the Fed announced that monetary policy would stay loose for the foreseeable future, and Fed chair Ben Bernanke explained that part of the reason for this is….
The austerity crusade of congressional Republicans. The Fed’s official statement noted bluntly that “fiscal policy is restraining economic growth,” and Bernanke expanded on that in his press conference later in the day:
Federal fiscal policy continues to be an important restraint on growth and a source of downside risk…and upcoming fiscal debates may involve additional risks to financial markets and to the broader economy. In light of these uncertainties, the Committee decided to await more evidence that the recovery’s progress will be sustained before adjusting the pace of asset purchases.
In the Q&A session that followed, he added a few more warnings:
A factor that did concern us in our discussion was some upcoming fiscal policy decisions. I would include both the possibility of a government shutdown, but also the debt limit issue….I think that a government shutdown, and perhaps even more so a failure to raise the debt limit, could have very serious consequences for the financial markets and for the economy.
….Our ability to offset these shocks is very limited, particularly a debt limit shock, and I think it’s extraordinarily important that Congress and the administration work together to find a way to make sure that the government is funded, public services are provided, that the government pays its bills, and that we avoid any kind of event like 2011, which had, at least for a time, a noticeable adverse effect on confidence on the economy.
There’s nothing new here. Bernanke has said all of these things before. The bottom line is simple: If Republicans really want to see monetary policy get back to normal, they need to stop sabotaging the economy with spending cuts and debt ceiling debacles. If they do that, the recovery will strengthen and the Fed will no longer be forced to sustain loose monetary policy as a way of offsetting stupid fiscal policy.
