The first FOMC meeting with all Board of Governors (BoG) seats filled since 2006 was on June 20, 2012. Some who had been advocating for a change in the stance of monetary policy, including yours truly, expected to see some movement in that direction, yet it did not materialize. The only dissenter on the vote to extend Operation Twist only was regional president Jeffrey Lacker. It is a rather curious predicament considering that all of the BoG seats, with the exception of Bernanke, have been filled by Obama who appears to be facing an uphill battle for reelection.
For most of the last three years there have been assumptions made about why the Fed would be behaving as it has given the recognition of failure in every single FOMC statement issued about the state of inflation and unemployment, and in dismal economic forecasts that the Fed does have within its means to remedy. These assumptions included incompetence, political conspiracy or cowardice, as well as hubris and ethical problems on the part of the regional presidents. But due to the results from the last meeting of the FOMC, I no longer put any weight toward any of them as possible causes for the current state of monetary affairs.
While incompetence could still be a factor, given the caliber of Bernanke’s previous scholarship, it does not seem plausible that he could be so blind. What does make sense given the preponderance of the evidence, however, is that the Fed has been doing what Obama wants per the Full Employment and Balanced Growth Act of 1977 that put the President’s economic agenda at the top of all governmental economic coordination efforts.
Some have pointed to Obama’s failure to fill the BoG seats as rationale for how a perceived problem at the Fed could have gone for so long. But now that he has filled those seats, and there is no change in policy stance, it seems more likely that there was no rush to fill the seats because there was no issue with cooperation between the Executive and the Fed from Obama’s point of view.
Bernanke does know that the Fed could solve the majority of the economic problems and he is following the law if he has been told by Obama that we won’t be giving QE money to bankers or other asset holders, which is generally how monetary easing works; and this explains why Bernanke would be sitting in front of congress begging for it to take some of the burden. It also explains why Twist is acceptable as opposed to other forms of monetary action.
Advocates of monetary resolution to our economic problems have been going on trying to convince the wrong people that monetary policy is broken and something needs to be done. It’s those on the left who have been in control of the entire process and are no longer satisfied with the way monetary policy has been transmitted for the last several decades that have been standing in the way. They want the government to distribute QE, not banks or “rich guys”. They apparently missed all indications from our democratic process that the people are not interested in government spending and distribution of wealth.
This is, indeed, the Obama economy. It has nothing to do with Bernanke.