September 13, 2012

ONE MIGHT accuse Federal Reserve Chairman Ben S. Bernanke of many shortcomings, including misjudging the depth and timing of the nation’s economic slowdown. But intellectual dishonesty is not one of them. While fighting the Great Recession with unprecedented near-zero interest rates and Fed balance-sheet expansion, Mr. Bernanke has consistently acknowledged that he is navigating uncharted waters, and that, while his policies have both costs and benefits, neither can be measured with ideal precision. He has insisted that monetary policy is no panacea, and that Congress, too, will have to do its part by setting a stable long-term fiscal policy.

Mr. Bernanke repeated many of those points at his news conference Thursday after the Fed announced further monetary easing. The central bank will buy mortgage-backed securities at a rate of $85 billion per month through the rest of the year, and then $40 billion per month until the labor market “improves substantially,” while explicitly extending super-low interest rates through mid-2015. The open-ended commitment was new, and aggressive. Mr. Bernanke said that the Fed was acting because unemployment remains stubbornly high amid docile inflation.

Based on his view that the Fed’s policies to date reduced interest rates by a full percentage point below what they would have been otherwise, creating roughly 2 million jobs, the Fed chairman argued that more easing could provide still more economic “support,” in the form of lower mortgage rates and higher asset prices — both of which would make households feel wealthier and thus more willing to buy goods and services.

As so often in the past, our reaction to Mr. Bernanke is “yes, but.” Yes: The economy is far from full employment and inflation is near the Fed’s 2 percent target. And yes: The Fed’s response blunted the Great Recession, so more easing might help more. But: Mortgage rates are already at all-time lows, so it’s unclear how much more home-buying and refinancing the Fed can stimulate; the longer zero-interest rates persist, the more it becomes apparent that they operate as a stealth tax on savers; the bigger the Fed’s balance sheet, the costlier it may be to reduce it when robust economic growth resumes.

Finally, the biggest “but” of all: In response to concerns about the impact of his policy on savers, Mr. Bernanke explained that “while low interest rates do impose some costs, Americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote.” His trade-off is defensible — but also an example of implicit value judgments, which an unelected Fed chairman is not necessarily better suited than anyone else to make.

Mr. Bernanke clearly does not relish this role. If he had his druthers, the elected members of Congress would long ago have done their part for economic growth by devising a credible fiscal plan. Here, too, however, monetary easing has a contradictory impact. It lowers the government’s interest costs in the short term, thus diminishing the government’s sense of fiscal urgency — or, as a recent Federal Reserve Bank of Dallas working paper argues, “it fosters false confidence in the sustainability of their fiscal position.“

In short, Mr. Bernanke is buying time for the United States to restructure its finances, private and public, under relatively benign conditions. It’s up to Congress and the president to use that time wisely, despite the temptation to procrastinate. If they don’t, they may well be forced to deal with the budget in even tougher economic circumstances than they face now.