The Politics of QE3

Much of the economics blogosphere (myself included) is jubilant about the Fed’s decision to start a third round of quantitative easing amidst the stalling recovery. Bernanke made the announcement on Thursday, in which he stated that there was strong support for the move amongst the FOMC, with eleven of twelve members saying yes. The decision has been noted as a victory for economics bloggers, namely Scott Sumner who has been tremendous in keeping the issue on people’s minds. It has perhaps shown the growing influence of blogs (and the Internet in general) in policymaking and I for one think that is wonderful.

While there is a lot to be happy with the Fed’s actions, there are still some worries about the longer term implications. It is September before an election year, after all and given the history of such moves during this time, the Fed is likely to get harsh criticism or worse should Obama win in 2012. It is the “worse” that is the fear. With a Congress that was has been more and more vocal on the Fed in recent years and one that had already tried to take action against how the Fed does things (namely to try to stop such stimulus), a move like this given the timing can be a trigger for blowback.

Admittedly, I am playing the pessimist here. For all we know, the Democrats might have had a similar response had the Fed not acted and Obama lost. It is certainly a thin wire the central bank walks on sometimes. I think the move was the right one, but an eye has to be kept on Congress. Thankfully, the victor in either case is less likely to be disappointed with the Fed.


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