Texas Gov. Rick Perry’s broadside against Federal Reserve Chairman Ben S. Bernanke on Monday night was a remarkable departure from the usual approach of major presidential candidates toward the Fed, which has been to make any criticism delicately and politely.
Perry was neither delicate nor polite. “If this guy prints more money between now and the election, I don’t know what y’all would do to him in Iowa, but we would treat him pretty ugly down in Texas,” Perry said. “Printing more money to play politics at this particular time in American history is almost . . . treasonous in my opinion.”
The comments have provoked widespread criticism, including from Republicans such as former George W. Bush aide Tony Fratto, who called them “inappropriate and unpresidential.”
Bernanke is a thoughtful, even-tempered monetary economist. And it’s worth remembering that he served in Bush’s White House and was first appointed to the Fed chairmanship by Bush.
To accuse any Fed chairman who would “print money” of treason is like criticizing the transportation secretary for building roads. It is the job of the Fed, or any central bank, to print money.
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.”
Already, they have said they expect to keep interest rates near zero for two more years. Another step in that vein would be to swap out shorter-term Treasury bonds on the Fed’s balance sheet for longer-term ones, which might help lower rates for mortgages and long-term corporate borrowing. “Changing the duration mix of the system open markets portfolio” doesn’t sound quite as ominous as “printing money.”
There has been a strange inversion of political pressure on the Fed in the past couple of years.
For most of its history, political authorities from both parties have pressed the central bank to keep interest rates low and expand the money supply as much as possible with the aim of invigorating economic growth. For example, Richard Nixon put strong pressure on Fed Chairman Arthur Burns to ease in advance of the 1972 election; members of Congress pilloried Chairman Paul Volcker in the early 1980s for a tight money policy that caused a deep recession, and aides to Ronald Reagan and George H.W. Bush applied pressure on Volcker and his successor, Alan Greenspan, to ease the money supply.
But now, the most intense pressure on the Fed is coming from Republicans who argue that tight money policies are needed even in a time of 9 percent unemployment.
The question is whether they follow up these demands with their actual appointments to the Fed board. Would a President Perry appoint Fed governors who share his hawkish views? Or would he, after taking office, see some of the advantages of loose monetary policy in a time of high joblessness and low inflation?