From Tyler: What Would Volcker Do?

tylerI’m getting ready to watch Ben Bernanke’s press conference. Call me old school, but I just can’t wrap my crusty old brain around the idea that the Fed Chairman meets the press regularly. Can you imagine Volcker doing it? I don’t think so. But be that as it may….

…Just a few minutes ago, the Fed’s Open Market Committee, the one that sets interest-rate policy, voted to leave rates unchanged and not interrupt its bond-buying program. The statement that accompanied that decision was almost word-for-word identical to the one released after the last FOMC meeting in January.

There were some signs in the statement that the Fed thinks the economy has strengthened slightly since its wobble in last year’s fourth quarter. But it’s not strong enough, clearly, in the Fed’s opinion to change policy and remove the monetary support the Central Bank has been supplying since the financial crisis.

It’s a somewhat controversial stance, though not, apparently, among the FOMC members.

There was only one dissent – Esther George of the Kansas City Fed. Some critics believe the monetary stimulus risks inflation down the road or a weaker dollar. The Fed doesn’t see that. Or at least Bernanke doesn’t, and he’s in charge. What the Fed does see, however, is an economy that is growing only moderately and now faces what the FOMC calls a “somewhat more restrictive” fiscal policy.

Remember that Professor Bernanke is an economic historian. He’s a particular student of the Great Depression. He knows well that in 1937 Congress tightened the federal purse strings. The economy was still in the tank. Unemployment was debilitating. Many students of the era believe that the fiscal tightening harmed an already weak economy and produced a second leg down in the Depression.

Obviously, times are different now. Today’s economy may not be growing optimally but it is growing. Still, historian Bernanke has no desire to risk tightening monetary policy even as Congress squeezes federal spending.

Tonight on NBR, we will discuss the Fed’s decision with Jan Hatzius, chief economist for Goldman Sachs, and we will get the latest from Cyprus, where the banks will now remain closed until next Tuesday at the earliest. I think I’m going to go to my ATM tonight, just in case.

See you this evening on NBR, Tyler Mathisen.

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