For my money, here’s the quote of the day:
“You’re basically saying the Congress should run monetary policy. I always like to say, if you love the way they’re managing fiscal policy let them run monetary policy.”
–Ben Bernanke, explaining why he opposes Rand Paul’s “Audit the Fed” bill.
Bernanke has a point. Those of us of a certain age remember a time when the president and Congress would routinely try to publicly influence Fed policy–the practice was called “jawboning the Fed”—and the result was, well, the 1970s. The Fed chairman leading up to that time, Arthur Burns, apparently became so gun-shy by the verbal abuse he was taking that many people believed he didn’t keep interest rates as high as they needed to be to hold back inflation. Whether he was as gun-shy as supposed, the perception took hold that the Fed had lost a measure of independence—and thus its credibility as guardian of the currency. It wasn’t until Paul Volcker boosted short rates to the 20% that inflation was finally broken and the Fed’s credibility restored.
You’ll have your own opinion of Ben Bernanke’s legacy at the Fed, his role in TARP and the QEs in particular, and of Janet Yellen’s low-rates-forever policy, for that matter. But it’s hard to imagine how the situation would be improved if Congress were given an opportunity—even an indirect one–to meddle with interest rates, as well. Not everyone in Congress is, ahem, a Rand Paul-style hard-money type.
Ben Bernanke is right. If you think Congress would be good at monetary policy look at how it run’s fiscal policy.
What do you think? Let me know!