‘Fiscal policy is restraining economic growth’

'Fiscal policy is restraining economic growth'
'Fiscal policy is restraining economic growth'
Associated Press

If you like the status quo in U.S. monetary policy, you’ll enjoy Federal Reserve Chairman Ben Bernanke’s latest announcement.

The U.S. Federal Reserve stuck to its plan to buy $85 billion in bonds each month to push down borrowing costs and prop up the economy, citing risks to growth from recent budget tightening in Washington.

Describing the economy as expanding moderately in a statement that largely mirrored its March decision, Fed officials cited continued improvement in labor market conditions.

But they reiterated that unemployment is still too high for policymakers’ comfort, reinforcing their desire to keep buying assets until the outlook for jobs improves substantially.

The key takeaway from the Fed’s policy statement, at least to me, came in these six words: “Fiscal policy is restraining economic growth.”

Let’s translate that: government spending cuts are hurting the economy.

To reiterate a point we last discussed in December, Bernanke has, over the last few years, occasionally abandoned subtlety and explicitly pleaded with Congress to consider fiscal stimulus, but Republicans have always refused. (Indeed, GOP lawmakers haven’t just been content to ignore the need for fiscal remedies, they’ve also demanded that Bernanke stop trying to improve the economy through monetary measures.)

Bernanke wants Congress to act as a partner, working alongside the Fed to strengthen the economy. Instead, Congress has acted as an opponent, pushing in the opposite direction.

In fact, congressional Republicans see Bernanke’s explanation that unnecessary government spending cuts are undermining the recovery, and they respond with two arguments: (1) we need more unnecessary government spending cuts; and (2) the Republican Fed chairman must be some kind of liberal.

Ben Bernanke and Federal Reserve

'Fiscal policy is restraining economic growth'