Do Rick Perry’s Statements Make Monetary Easing More Or Less Likely?

Neil Irwin has a very good piece about Rick Perry and the Federal Reserve that has some speculation about the possible impact of these remarks on actual monetary policy:

The question, now as ever, is how much money to print. That’s always a difficult decision and subject to fair debate, but the idea that any decision to ease monetary policy would be necessarily a political one doesn’t make much sense. If the risk of deflation, or falling prices, seems to reappear, the Fed is sure to ease its policy further, perhaps with another round of bond purchases akin to the $600 billion bond buying program that ended in June. (By buying the bonds in the market, the Fed essentially pumped new money into the economy — or, in colloquial terms, printed more money.)

That said, the attack from Perry and others in the race for the Republican nomination does complicate the Fed’s job ahead. The central bank is supposed to make its decisions in response to economics, not politics. But officials will be reluctant to do anything that puts the Fed in the crosshairs of what is sure to be a polarizing presidential election. That being the case, Fed leaders might be more receptive to tools to ease monetary policy that don’t come across as “printing more money.”

The Fed of course isn’t supposed to make decisions based on politics. But FOMC members aren’t going to be able to be totally unprejudiced by political factors when making their decisions. And I see two cross-cutting pressures here. One is the one Irwin discusses here. The Fed gets criticized so the Fed gets gunshy. But the other starts with the observation that Ben Bernanke is a conservative Republican, not only George W Bush’s nominee to the Federal Reserve but before that a Bush White House aide. It seems safe to assume that Bernanke would not have chaired Bush’s Council of Economic Advisors unless he was inclined to think that things like higher marginal tax rates on high-income individuals, higher transfer payments to low-income individuals, higher minimum wage rates, and more union-sympathetic NLRB members are deleterious to the long-run economic growth of the United States of America. My assumption for years now has been that these beliefs have, at the margin, been coloring his actions and that this is a reason why it was a mistake for President Obama to not put someone in office who shares his basic values. I think that insofar as it seems likely that Obama will be opposed in the 2012 general election by someone who regards Bernanke as a traitor and who evinces fundamental ignorance of the role of a modern central bank, that this will tend to neutralize any pro-Republican prejudice that may exist in Bernanke’s mind.