GOP sees Fed move as a ploy in the election
The Federal Reserve took aggressive action Thursday to try to reinvigorate the economy and generate more jobs, announcing a major program of purchasing $40 billion a month in mortgage bonds that it hopes will drive down interest rates to record lows and spur faster growth.
Financial markets rallied strongly in response, with the Dow Jones industrial average soaring by 207 points to end at the highest level since December 2007. Gold, oil and other commodity prices also rose on the Fed’s move, which the central bank contends is needed to carry out its mandate to restore full employment in the U.S. economy.
The unusual election-year stimulus campaign did stir political controversy, however, and was opposed by Republicans, some of whom accused the Fed of trying to get President Obama re-elected.
With the unemployment rate still hovering above 8 percent, he said, the Fed must act because Congress has been unwilling to provide more stimulus to the sluggish economy or resolve uncertainties over major budget cuts and tax increases scheduled to take effect at the end of the year — a possibility he said is overshadowing the economy and holding back growth.
“The employment situation remains a grave concern,” Mr. Bernanke said, stressing that the central bank wants to promote job growth and help stimulate home sales and values with its move to purchase mortgage bonds backed by Fannie Mae and Freddie Mac.
He predicted the action will help increase confidence among businesses and consumers and, as home and stock prices rise, foster a sense of growing wealth that will make people more willing to spend.
Republicans dubbed the move futile.
“I’m disappointed in the Federal Reserve’s actions today and truly believe Chairman Bernanke is beginning to do serious damage to the Fed as an institution” by inserting itself into the political crossfire, said Sen. Bob Corker, Tennessee Republican and leading member of the Senate Banking Committee.
“Open-ended purchases of mortgage-backed securities will politicize the Fed and add substantially to its balance sheet risks, but it will not help our economy’s long-term growth prospects. Business leaders all over the country tell me that economic growth is being impaired by public policy uncertainty — mostly driven by the implications of our massive debt — not by a lack of cheap money.”
While most criticism of the Fed in the past has come from liberals demanding more cuts in interest rates, this year it is Republicans who have mounted a major attack on the Fed, demanding tighter policies that would lead to higher interest rates.
Republican presidential nominee Mitt Romney has vowed to replace Mr. Bernanke when his term expires in 2014, and the GOP included provisions in its platform to study a return to the gold standard, which is opposed by the Fed. The platform also called for requiring the Fed’s interest rate decisions to be closely monitored by a congressional watchdog — a move Mr. Bernanke contends would seriously threaten its independence.
“We should be creating wealth, not printing dollars,” said Lanhee Chen, policy director for Romney for President. “After four years of stagnant growth, falling incomes, rising costs and persistently high unemployment, the American economy doesn’t need more artificial and ineffective measures.”
In the face of such criticism and the suggestion he is trying to boost Mr. Obama’s re-election prospects, Mr. Bernanke emphatically denied that there was any political motive or consideration in the decision.
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