Last week, the Washington Post ran an article reporting that the Federal Reserve is weighing “new steps to bolster growth” in light of the exceedingly sluggish movement of the labor market (and the Fed’s mandate to maximize employment). Though the actual steps that the Fed is reportedly considering are quite small, it was good to see that the Fed is at least looking at additional steps to jolt the lagging economy.
This week, the Senate Banking Committee is scheduled to hold a hearing on three candidates for the Federal Reserve Board nominated by President Obama, giving lawmakers ample opportunity to ask how realistic it is for the Fed to do more about employment and whether Obama’s nominees think such steps are warranted:
More often than not, the dour economists who staff the central bank tend to worry mostly about inflation, which the Fed can generally try to keep in check by calibrating interest rates. The second mandate — to promote jobs — gets less attention, in part because the Fed’s powers are less direct. Janet Yellen, the San Francisco Fed president whom President Obama nominated to be the central bank’s vice chairwoman, has argued that in times like these, the Fed should probably be more worried about jobs than inflation.
“I’m one who believes that persistently high unemployment tends to depress inflation,” said Yellen. “Behind these numbers is flesh and blood — millions of people who struggle every day to make ends meet.”
Of course, Federal Reserve Chairman Ben Bernanke has already acknowledged that the Fed could be doing more to boost employment, but that it likely won’t do so. As Paul Krugman wrote today, “the Fed was supposed to be intellectually prepared for this situation. Mr. Bernanke has thought long and hard about how to avoid a Japanese-style economic trap, and the Fed’s researchers have been obsessed for years with the same question. But here we are, visibly sliding toward deflation — and the Fed is standing pat.”
Back in January, there were stories of Fed members pushing for “more policy stimulus,” yet we’re still here with 9.7 percent unemployment and a central bank that is sitting on its hands. Can Obama’s nominees make a difference? If the Senate asks the right questions, we may get a clue this week.