“A commitment to provide stimulus beyond the point at which the recovery strengthens and growth increases implies too great a willingness to tolerate higher inflation,” Jeffrey M. Lacker, the president of the Federal Reserve Bank of Richmond, said in a speech last week.
Lacker was the only one of the 12 voting members of the Fed’s governing committee to dissent from this month’s decision.
Despite that dissent, Bernanke’s efforts to remake the Fed dovetails with his efforts to forge a greater consensus among members of the Federal Open Markets Committee.
Bernanke believes that the consensus is especially critical now because the Fed’s promises extend beyond the chairman’s term, which ends in early 2014. Many economists expect Bernanke to step down then after eight grueling years.
Together, the push for the Fed to take a more aggressive stance against unemployment and make decisions by consensus fulfills two longtime goals of Bernanke, one of the preeminent Fed scholars before becoming chairman.
As a college professor, he strongly advocated that central banks not stand idly by during times of high unemployment and argued that more deliberation at central banks can increase the legitimacy and impact of their actions.
But the search for consensus may have also delayed the Fed’s actions.
By late July, for instance, Bernanke thought the jobs market was weak, and he was ready to launch a major intervention. At the Fed’s meeting July 31 and Aug. 1, Bernanke circulated open-ended language the Fed would later release.
But some of Bernanke’s colleagues were not convinced that any new measures would be particularly effective and wondered whether it would be better to save those weapons for a crisis, such as what might happen if Greece leaves the euro zone.
Since the Fed had announced a stimulus in June, Bernanke was willing to wait to do another major stimulus. Instead, the Fed issued statements suggesting that action would be on its way if the economy did not improve.
Over six weeks of lobbying, Bernanke convinced the other committee members that the labor market was extremely weak and that additional action could help. He told them he expected new stimulus to help create 500,000 jobs.
In a bit of cunning, he argued that the open-ended nature of the commitment — which most economists view as highly stimulative — would allow the Fed to pull back if the economy takes off.
The chairman’s pursuit of consensus has had costs, according to many economists. These economists, some of whom are close to Bernanke, have excoriated his record as failing to respond vigorously enough to a national crisis of 12.5 million people without jobs.
While left-leaning economists have pressed Bernanke to do more, he has also felt heat from the right to stop intervening in the markets.
Republicans have accused Bernanke of subsidizing the nation’s borrowing binge by buying more than a trillion dollars in U.S. government debt since 2008 — a position he has rejected.