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Fed to the Rescue?

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Ben Bernanke at FOMCBen Bernanke was center-stage at his last FOMC meeting as chairman this week. The Fed was widely expected to continue to taper its large-scale asset purchase program, and it did—reducing its monthly purchases by another $10 billion to $65 billion, following a $10 billion reduction at its previous meeting. However, there was some speculation among analysts that in the wake of the emerging markets sell-off that has plagued global financial markets since last week, the Fed might postpone any further tapering in an effort to alleviate some of the panic. Why might the Fed be considered responsible for this market correction? In a recent report, the World Bank warned that changes in Fed policy could have negative implications for emerging market economies this year—if the adjustment to the policy changes is disorderly.

In the end, the Fed continued with its tapering, heedless of the plight of emerging markets. It received some flack for this in the press, but it also faced a “credibility crisis” if it deviated from its presumed intention to continue a steady $10-billion-per-month tapering program. The Fed was in a lose-lose situation: To postpone tapering would be to neglect the U.S. economy. To taper would be to neglect global markets.

Here are some other issues the Fed failed to address this week: It did not propose a solution to the stubbornly high long-term unemployment rate in the United States. It also did not take a stand on various proposals to raise the minimum wage, or to address income inequality. It made no effort to help resolve the impasse on immigration reform in Congress. The Fed did not draft a contingency plan for the bailout of European banks at risk of failing because of new regulatory standards about to be imposed by the European Central Bank. Furthermore, Ben Bernanke did not give Canadian Mark Carney advice on how to be a more effective Governor of the Bank of England.

The Fed did not draft a treaty to achieve peace in the Middle East. It did not fix the polar vortex, nor did it predict a winner for the Super Bowl. It did not even disclose which team the majority of FOMC members are rooting for. What is the Fed hiding? Does it not even care about football? How could the Fed be so un-American? Worst of all, Ben Bernanke did not personally call my mother to wish her a happy birthday.

In responding to the 2007-08 financial crisis, the Fed may have overstepped the bounds of its mandate. Bernanke himself has seemingly justified this as a valid response to the tight fiscal policy imposed by Congress. Unfortunately, the Fed’s attempt to single-handedly resolve the financial crisis and foster an economic recovery from the Great Recession has encouraged the markets, media, and punditry to expect the Fed to solve all the problems plaguing the U.S. economy—and the world. But that is not its job.

[Photo: REUTERS/Business Insider]



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