Today, Federal Reserve Chairman Ben Bernanke went to Capitol Hill to face a confirmation hearing before the Senate Banking committee. Bernanke has been getting knocked around in the last few days, and while a bare majority of the committee seems to support his confirmation, he was still amply criticized during the hearing. Complicating matters, both Sen. Bernie Sanders (I-VT) and Sen. Jim Bunning (R-KY) have placed holds on Bernanke’s nomination, which, while unlikely to derail his confirmation, can slow it down quite a bit.
While the main point of consternation within Congress is the Fed’s lending actions during the economic crisis — which is the drive behind Reps. Ron Paul (R-TX) and Alan Grayson’s (D-FL) effort to audit the Fed — as Matt Yglesias has been pointing out, Bernanke should also have to answer for his “apparent contentedness with a monetary policy that is going to fall far short of the Fed’s legal mandate to maximize employment.”
Sen. Jack Reed (D-RI) actually asked Bernanke about unemployment during the hearing, and while Bernanke agreed that joblessness is “the most difficult problem that we face right now” — and conceded that the long-term costs of high unemployment are “severe” — he decided to not advocate more steps on the part of the Fed or to reassure Congress that he wouldn’t act to reel in fiscal expansion:
We have kept interest rates close to zero to try to stimulate growth and we have seen now positive growth in output which will translate into jobs, we’re hoping soon…I discussed earlier some of the steps we’re taking to try to unfreeze credit, including pushing banks to give credit-worthy borrowers access to loans, have banks raise capital, try to restart securitization markets and other steps. So the Fed has a program we’re employing, which is focused on getting jobs created. Now, on your side, on the fiscal side, obviously there are a whole number of different options…Obviously all of these issues will have fiscal consequences and again, Congress will have to make those tradeoffs.
Prior to the hearing Sen. Sheldon Whitehouse (D-RI) said that he wants to hear Bernanke say that the Fed is “willing to take their eyes off an exclusive gaze on the welfare of Wall Street and start giving a red hot damn about the American public.” I’m not sure that Bernanke’s response is very reassuring.
According to the latest economic forecast from Goldman Sachs, unemployment will peak at almost 11 percent in mid-2011, while inflation will remain close to zero at the same time. Therefore, there is no reason for the Fed to not take additional steps to encourage employment, and in fact, the Fed would be violating its legal mandate if it sits on its hands. And if Bernanke really feels that there is nothing more the Fed can do, then he should make sure that Congress knows that.
Minutes from the last Federal Reserve Board meeting show that some Fed leaders are freaking out about inflation, despite all the evidence that unemployment is the far greater problem. Bernanke had the opportunity to ease concerns that the Fed will allow the country to suffer high unemployment in the name of fighting inflation and seems to have let it pass.