September 14 2012

Federal Reserve Gives Congress More Time

Emily Wismer

 

Yesterday, Federal Reserve Chairman Ben Bernanke announced substantial market intervention to spur investment in the economy. Called quantitative easing, the Fed will purchase another $40 billion per month in mortgage bonds and $45 billion per month in treasury bonds through the end of this year and beyond if the economy does not dramatically rebound.

In an effort to spur home buying and investments in business, the Fed has promised to keep interest rates low for some time, regardless of whether the economy recovers.

This all-guns out approach by the Fed underscores the state of the economy and expectations Congress and the Administration will not be able to give businesses the certainty they need to create jobs and invest in expansion.  Bernanke shared, “Five million Americans have been unemployed for more than six months, and millions more have left the labor force, many of them doubtless because they’ve given up on finding suitable work.”

The Fed predicts unemployment will hover around between 8-8.2 percent through the end of the year and stay in the high 7 percents through the first year of the next president. It expects a rapid drop in unemployment in 2014.

But is what a Congress that has been known for procrastination, neglect, and punting responsibilities needs more time? President of the Dallas Federal Reserve Richard Fisher argues Congress is holding back the economy. Reuters reports:

I think the U.S. is ready to rock and roll," Fisher said, adding, "there is a throttling mechanism which is called fiscal policy."

Even if Congress acts to avert the so-called fiscal cliff of tax increases and spending cuts set to take place at the end of the year, those fixes will do nothing to boost hiring. Companies simply cannot take on new employees if they do not know what their taxes will be, Fisher said.

"If our fiscal guys could only get their act together," he said, "we could unleash enormous growth in this country."

In fact, the Fed’s actions may stimulate short-term growth, but Congress’ inaction is holding back our economy in the long term. Washington doesn’t need more time. In fact, politicians in Washington may be surprised voter’s response if they left the campaign trail and actually got meaningful reform done.

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