The Federal Reserve today announced another round of so called quantitative easing — QE3 — aimed at boosting the sluggish economy. Republicans have been warning the central bank against launching new measures, arguing that to do so would ignite inflation. However, inflation has been nearly nonexistent, Republicans concede that the Fed’s actions could help economic growth.

Presidential candidate Mitt Romney has been saying that the Fed should stay away from any new measures. In a statement following the Fed’s announcement, the Romney campaign called the central bank’s move “artificial and ineffective“:

The Federal Reserve’s announcement of a third round of quantitative easing is further confirmation that President Obama’s policies have not worked. After four years of stagnant growth, falling incomes, rising costs, and persistently high unemployment, the American economy doesn’t need more artificial and ineffective measures. We should be creating wealth, not printing dollars. As president, Mitt Romney will enact bold, pro-growth policies that lead to robust job creation, higher take-home pay, and a true economic recovery.

The Fed estimates that the first two rounds of quantitative easing created about two million jobs. Romney’s economic plan, meanwhile, would kill 360,000 jobs in 2013 alone.

The Federal Reserve Board will wrap up its latest meeting today and may announce a new round of efforts to boost sluggish job growth. Federal Reserve Chairman Ben Bernanke estimates that the first two rounds of so-called quantitative easing increased employment by about two millions jobs.

Republicans have consistently criticized the Fed’s QE programs, claiming that the central bank would spark inflation (even though inflation has been near-nonexistent). Many GOP’ers, in fact, have said that the Fed should ignore its mandate to produce full employment entirely, and only monitor inflation. According to The Hill, some Republicans believe that the Fed should do nothing more to help create jobs, even as they admit that such steps would be effective:

Congressional Republicans, wary of the Fed’s recent efforts to stimulate the recovery, said Wednesday that the its political independence could be jeopardized if officials embark on another round of stimulus so close to Election Day.

“It really is interesting that it is happening right now before an election,” said Rep. Raul Labrador (R-Idaho). “It is going to sow some growth in the economy, and the Obama administration is going to claim credit.” [...]

While many Republicans have criticized the Fed on economic grounds, an announcement about new stimulus — which could send financial markets soaring in the run-up to the election — is likely to bring charges that the bank has partisan aims.

“They are the ones who always say they want to remain independent. So they should consider, just how independent are they when they come out, only 50 days before the election, with this?” said Rep. Scott Garrett (R-N.J.).

The upshot of these comments is that Republicans believe the Fed can do more to help Americans suffering under still-high unemployment, but that it shouldn’t because to do so might help the Obama administration.

For several years now, the Fed has hit its inflation target while utterly failing in its mandate to reduce unemployment, even as some members of the central bank have argued for the Fed to do more. “If there’s a slowdown and you have an independent central bank, the appropriate response is to act. I think that’s exactly what we should do,” said Boston Federal Reserve President Eric Rosengren. But Republicans, for political purposes, want the Fed to stand pat, so they can continue to blast the administration’s jobs record (and block the president’s jobs bill).

On CNBC today, Carl Quintanilla asked vice presidential candidate Paul Ryan if he thought today’s disappointing jobs report would inspire a third round of quantitative easing — the monetary stimulus the Federal Reserve has engaged in off and on since the recession. Ryan replied by saying that the costs of quantitative easing “are clearly outweighing the benefits”:

RYAN: I’ve known [Fed Chairman Ben Bernanke] a long time. He and I have disagreements on these issues, but they’re respectful of one another. I think QE3 — I think QE — the costs outweigh the benefits in my personal opinion. But I think this lackluster report probably increases the likelihood… But at the end of the day Carl, all this easing is simply, in my opinion, the Federal Reserve trying to bail out bad fiscal policy. And I think the costs are clearly outweighing the benefits of this.

Watch it:

Ryan’s assessment is simply bizarre. The “costs” Ryan is referring to are presumably higher inflation rates, which he’s repeatedly warned are just around the corner ever since the Fed began using QE. Inflation has stubbornly refused to comply with Ryan’s predictions, however. Ever since the recession, it’s stayed right around the Fed’s preferred target of two percent:

And controlling inflation is only one half of the Fed’s dual mandate. The other half is keeping unemployment low. As the chart above shows, there’s been some progress on this front, but the country remains in an employment crisis.

Federal Reserve Chairman Ben Bernanke recently argued that the first two rounds of QE added as many as two million jobs to the economy. That would certainly count as a sizable benefit. Even if this is an overestimation, there’s simply no evidence of negative costs from QE that would suggest reticence from the Fed is the right course. And there are millions of unemployed Americans that suggest another crack at QE is more than called for.

During a speech Friday in Jackson Hole, Wyoming, Federal Reserve Chairman Ben Bernanke asserted that the extraordinary measures taken by the central bank during and after the Great Recession added millions of jobs to the economy. But he wouldn’t commit to doing anything more to boost the faltering recovery, even after admitting that high levels of unemployment “will wreak structural damage on our economy that could last for many years“:

Model simulations conducted at the Federal Reserve generally find that the securities purchase programs have provided significant help for the economy. For example, a study using the Board’s FRB/US model of the economy found that, as of 2012, the first two rounds of [large scale asset purchases] may have raised the level of output by almost 3 percent and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred. [...]

As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation. The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.

Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.

This has been a consistent theme for Bernanke, claiming that unemployment will result in long-term damage to the economy, while refusing to take additional steps to do anything about it. As economist Chad Stone shows in U.S. News & World Report this morning, the Fed has utterly failed to meet its obligation to bring down unemployment, even as inflation, the other half of the Fed’s dual mandate, stays low:

Not all members of the Federal Reserve board are content with the central bank sitting on its hands. As Boston Federal Reserve President Eric Rosengren said, “If there’s a slowdown and you have an independent central bank, the appropriate response is to act. I think that’s exactly what we should do.”

During an interview with CNN’s Gloria Borger yesterday, Mitt Romney said that the Federal Reserve should not enact a new round of stimulus aimed at boosting the still-sluggish economy, even as he admitted that the Fed’s first round of so-called “quantitative easing” did some good:

BORGER: Should — should the Fed intervene at some point?

ROMNEY: Well, I think the Fed’s first action, in quantitative easing, was effective to a certain degree. But I believe that the QE2, the second round of easing — I don’t think it had the impact that they were hoping for. And I’m sure the Fed is watching, will try and encourage the economy. But I don’t think a massive new QE3 is going to help this economy.

The Fed itself announced last week that, though it “anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate,” no new action will be taken. This is consistent with the Fed’s actions over the last few years, when it has tolerated high unemployment, even as inflation, the other half of the Fed’s mandate, has stayed low:

Federal Reserve Chairman Ben Bernanke said in a speech today that, “even though some key aggregate metrics — including consumer spending, disposable income, household net worth, and debt service payments–have moved in the direction of recovery, it is clear that many individuals and households continue to struggle with difficult economic and financial conditions.” But still, the Fed is standing pat.

As ThinkProgress’ Jeff Spross detailed, Republicans have warned that the Fed’s actions would spark inflation, which has never actually materialized. Romney now seems to be jumping on board with a similar message, saying that the Fed should not take all available steps to bring down the jobless rate.

The Federal Open Market Committee — the group that decides monetary policy at the Federal Reserve — will conclude its latest round of meetings today. The Fed is under growing pressure to do something to aid the still struggling economy, perhaps even a third round of quantitative easing. A statement released this afternoon will announce the Fed’s intentions going forward.

If the Fed does decide to act, it’s almost a certainty that Republicans will cry foul. Ever since the recession, Republicans have regularly denounced the Fed for taking steps to help the economy, warning that runaway inflation is just around the corner. But these predictions have been repeatedly discredited by the path inflation has actually taken. ThinkProgress has the video report:

Since the 2008 financial crisis, the rate of conventional inflation only briefly touched 4 percent before falling back below 2 percent earlier this year. Core inflation — which removes energy and food prices in order to smooth at noise in the measurement — finally got just above 2 percent in late 2011 and has plateaued since. Indeed, looking back over the last few decades, the country’s inflation rate since the 2008 recession has been at near-historic lows. Certainly far below the 12 to 15 percent inflation the country experienced in the 1970s and 1980s — presumably the memory that’s driving the GOP’s warnings.

Because inflation is fundamentally the result of a growing economy, most any monetary policy that seeks to boost growth out of a depression will require a tolerance for at least temporarily higher inflation levels in order to be effective. But the Fed’s insistence on treating 2 percent inflation as a ceiling rather than one end of a balance between price stability and job growth has left the country mired in high unemployment.

The GOP’s inflation fear-mongering and outright political pressure on the Fed certainly hasn’t done anything to help with that imbalance. Last year some Republicans went as far as introducing legislation requiring the Fed to ignore employment levels entirely and just focus on price stability when deciding monetary policy.

A top Federal Reserve official is calling on regulators to prevent banks from circumventing a provision in the Dodd-Frank financial reform bill that aims to prevent the kind of risk-taking that led to the financial crisis. In a speech to graduate students in Colorado, Fed Gov. Sarah Bloom Raskin criticized the Volcker Rule — which prohibits proprietary trading by federally insured banks and their affiliates — for not going far enough.

Raskin told students that she voted against a regulatory measure because it undermines the Volcker rule’s goal to prevent banks enjoying access to government emergency lending from participating in dangerous speculative trading:

I was concerned that, as proposed, the guard rails were too broad and would allow banks to be able to go too far off the road. Further, I was concerned that the guard rails as crafted could be subject to significant abuse–abuse that would be very hard for even the best supervisors to catch. [...] I feel it is very important that the guard rails be strong and be set very close to the road because of the potentially severe dangers of, and costs associated with, proprietary trading by institutions that have access to the federal safety net.

Raskin goes on to argue that, when it comes to federally insured banks, the high level of liquidity brought on by proprietary trading has no public benefit:

Indeed, proprietary trading involves buying and selling purely for speculative purposes that have little to do with a true assessment of a financial position’s underlying value. Price discovery actually is impeded by this hyper-liquidity that is introduced by such speculation. This hyper-liquidity, motivated by nothing more than expectations of short-term price movements, creates inefficient subsidies to buyers and sellers with no compelling public benefit. [...] In other words, certain capital market activities for federally insured banks should not be supported by vast amounts of public and private expenditure.

The Volcker rule does not ban all proprietary trading. Instead, it shifts the practice to conventional banks, hedge funds, and other market participants. The notion that ending proprietary trading among “Too Big To Fail” banks will impact overall market liquidity is false, according to Raskin.

Nonetheless, banks have spent the better part of the last two years successfully lobbying Congressional Republicans, and the Volcker Rule has already been watered down so much that the measure’s namesake, former Fed Chair Paul Volcker, says he doesn’t like it.

– Steven Perlberg