Fed Faces New Challenge from the Left
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The Fiscal Times
April 26, 2012

Federal Reserve Board chairman Ben Bernanke is used to fending off critics on the right who think the Fed’s massive government bond purchases are sowing the seeds for rapid inflation. He shrugged off Texas Gov. Rick Perry who said things could turn “pretty ugly” if Bernanke showed his face in the Lone Star State. 

Lately, however, the Fed chairman’s harshest critics can be found on the left, which is blasting the central bank for being overly concerned about a non-existent inflationary threat while 12.7 million Americans are unemployed, and the unemployment rate remains stuck at 8.2 percent.

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Those critics received more grist for their mill Wednesday. The Fed’s latest economic forecast predicts sluggish economic growth of 2.4 to 2.9 percent this year, a slight increase from the 2.2 to 2.7 percent growth rate projected in January. The expected inflation rate for the year, even with food and fast-rising energy prices included, is still only 1.9 to 2.0 percent, which is a small increase from the 1.4 to 1.8 percent projected in January. The Fed’s target rate is 2 percent.

Leading the charge is Bernanke’s former colleague at Princeton University, New York Times columnist Paul Krugman. In a magazine article slated for publication Sunday, the liberal Nobel Prize-winning pundit accuses Bernanke of ignoring his own writings on the lessons of the Great Depression and his analysis of the failures of Japan’s central bank in dealing with its burst property bubble and subsequent downturn.

“Maybe politics are the impediment, and Chairman Bernanke has been forced to hide his inner professor. Or maybe the one-time academic has been assimilated by the Fed Borg and turned into a conventional central banker,” Krugman wrote. “Whichever account you prefer, however, the fact is that the Fed isn’t doing the job many economists expected it to do, and a result is mass suffering for American workers.”

Faced with interest rates that can’t be lowered below zero, Bernanke’s Fed over the past two years has purchased over $2 trillion of government and government-backed mortgage securities to drive down both short and long-term interest rates. It has promised to keep rates near zero through 2014, a pledge repeated Wednesday. “That sounds like a lot, but it’s much less than most analysts think necessary to jump-start economic recovery,” Krugman wrote.

spent 25 years as a foreign correspondent, economics writer and investigative business reporter for the Chicago Tribune and other publications. He is the author of the 2004 book, The $800 Million Pill: The Truth Behind the Cost of New Drugs.