House Republicans on the Budget Committee spent a hearing yesterday scolding Federal Reserve Chairman Ben Bernanke for instituting what’s known as quantitative easing — or QE2 — in an attempt to entice consumers and businesses into spending and spurring economic growth. With interest rates already at the zero bound, and the prospects of further fiscal stimulus coming from the Congress virtually non-existent, QE2 — which involves the Federal Reserve purchasing long-term Treasury bonds to push down interest rates — is essentially the last policy option that the federal government has to try to increase the sluggish rate of job growth.
Republicans, however, fear that this policy will bring on rampant inflation that the Fed will not be able to control:
“There is nothing more insidious that a country can do to its citizens than debase its currency,” [House Budget Committee Chairman Paul] Ryan (R-WI) warned. “My concern is that the costs of the Fed’s current monetary policy — the money creation and massive balance sheet expansion — will come to outweigh the perceived short-term benefits.”
The Financial Services Committee’s subcommittee also held a hearing yesterday on the threat of QE2, chaired by long-time Fed critic Rep. Ron Paul (R-TX). In fact, Republicans are so concerned with the threat of inflation that they are putting forward legislation stripping the Fed’s mandate to ensure full employment, so that it can focus solely on fighting inflation.
But is there any concern about inflation that would make it worth stopping efforts to boost employment in their tracks? As this graph from the New York Times’ David Leonhardt, the short answer is no:
As Leonhardt wrote:
Does it look dangerously high? Or might the slow pace of economic growth and the high level of unemployment be larger problems?
This is simply one more instance of House Republicans turning a blind eye towards job creation, in favor of picking ideological fights.