It’s increasingly clear that there’s some kind of split on the Federal Reserve’s Open Market Committee. Yesterday we saw (currently not voting) Richmond Fed President Jeffrey Lacker and Fed Governor’s Elizabeth Duke call for tighter money, a position also associated with Kansas City Fed President Thomas Hoenig. Today, Eric Rosengren (who does have a vote this year) speaks up for the other side of the argument and says “in the absence of fiscal action we’d have to think about what more we could do … if the economy gets weaker and the inflation rate gets lower, we should be thinking about alternative policies.” There are a variety of ways to explain what it is the Fed needs to do, but they basically come down to shaping expectations about the price level, nominal growth, the inflation rate, etc.
Since at this point it’s clear that anything Congress does will be trivial, and the American Recovery and Reinvestment Act’s impact on the growth rate is now done, if anyone does anything it has to be the Fed. One can only hope that Barack Obama’s nominees to the Fed Board of Governors recognize the need for action and will be confirmed swiftly. The administration’s failure to act more decisively on this matter (and perhaps the decision to re-appoint Ben Bernanke) increasing look like a major blunder that’s inadvertently sinking the entire progressive agenda. People tend not to pay attention to these things, but poor monetary policy under Herbert Hoover destroyed small-government conservatism in America for decades.