The Fed has Become a Creature of Politics

Photo Credit: Tim Evanson

Photo Credit: Tim Evanson

Because Ben Bernanke’s public persona is as mild as milk, the transformation in American governance in which he has participated is imperfectly understood and hence insufficiently deplored. The change is dramatized by two recent developments.

One was the campaigning by several constituencies for and against what supposedly were the two leading candidates — Larry Summers and Janet Yellen — to replace Bernanke as chairman of the Federal Reserve. The Fed can no longer be considered separated from politics.

The second, and related, development is the semantic infiltration of journalism by language that ratifies the Fed’s increasingly grandiose role. A Financial Times column on Yellen, now Bernanke’s presumptive successor, described her as “poised to take the tiller of the US economy.” Oh? The economy has a tiller? And with it the Fed chairman can steer the economy? Who knew? On the Atlantic’s Web site, a columnist defends the Fed’s recent decision not to follow through on earlier intimations about reducing its monthly purchases of $85 billion in mortgage and treasury bonds. This, the columnist said, illustrates the Fed’s admirable “nimbleness.” A touch on the tiller here, a nimble reversal there — these express the fatal conceit of an institution that considers itself capable of, and responsible for, fine-tuning the nation’s $15.7 trillion economy.

Slowing the Fed’s bond purchases is called “tapering,” which means more modest “quantitative easing.” This is how governments talk when trying not to be understood. By continuing the pace of “easing” — printing money — the Fed has acknowledged that its fine-tuning has failed. The nimble, tiller-touching Fed assumed it would be more successful at reducing unemployment.

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