Home > posts > Bernanke’s Fed: ‘Twist’ing in the Wind
September 21st, 2011 8:45 pm
Bernanke’s Fed: ‘Twist’ing in the Wind
Posted by Print

It was less than a month ago that the Federal Reserve wrapped up its annual economic symposium in Jackson Hole, Wyoming with all signs pointing to the prospect that the nation’s central bank was going to cool it on the “quantitative easing” (dumping new currency into the markets) for a while. Though the insanity has (at least temporarily) abated, the central bank is still making mischief.

As Politico reports:

The nation’s central bankers dusted off a 1960s-era plan in hopes of rousing the sluggish economy Wednesday, taking the unusual step of shifting $400 billion into longer-term bonds in hopes of slashing interest rates further.

The Federal Reserve’s Open Market Committee voted 7-3 to embark on what’s informally called “Operation Twist,” a move first used during the heyday of Chubby Checker and named for his song of the same name.

The policy is mostly inert, as it won’t actually result in a monetary injection ala quantitative easing. The early consensus is that it won’t have much effect one way or the other. But the possible rationale, if true, is revolting:

Exerting political pressure on Bernanke may have rallied the Fed to act, since the committee likely found “this political meddling repugnant,” wrote JPMorgan Chase economist Michael Feroli in a client note.

Let’s be clear about this: the Fed already operates independent of “political meddling.” Various members of Congress and candidates for president may have been carping about Bernanke’s leadership (a point on which they’re certainly justified), but their influence was limited to the range of their voices. Nothing they said could actually effect policy.

If something so immaterial to the Fed’s work could drive monetary decisions, then this may be the most petulant institution in the federal government. At a time when the economy teeters on the brink of another devastating downturn, making market decisions in response to slights real and imagined shows a staggering lack of seriousness. If this is Mr. Bernanke’s swipe at Governor Perry, he should note that he’s only strengthening the governor’s argument.

Comments are closed.