Does New Congress Have Changes In Store For Fed?
RENEE MONTAGNE, host:
As the Federal Reserve tackles the country's troubled economy, it's supposed to be independent of politicians. But in Washington, no one is really immune from politics. And now, after last week's elections, some of Fed Chairman Ben Bernanke's harshest critics are about to become far more powerful - which is why Steve Inskeep called David Wessel, the economics editor of the Wall Street Journal, to find out more.
STEVE INSKEEP, host:
Mr. DAVID WESSEL (Economics Editor, Wall Street Journal): Good morning.
INSKEEP: So how independent is Bernanke if he has critics in Congress?
Mr. WESSEL: Well, the Fed was created by Congress. It's accountable to Congress, and it knows that Congress, if it wants, can change the law. So it can never completely ignore Congress. But when it comes to monetary policy, when it comes to setting interest rates or buying these hundreds and billions of dollars' worth of Treasury debt, it is pretty darn independent, and there really isn't any reason to believe that the change in Congress is going to change that.
INSKEEP: Well, I'm glad you mentioned buying Treasury debt, because the Fed has said it's going to do more of that. This is one part of the government basically loaning money that it prints to another part of the government, which is something that makes people feel a little bit uneasy, particularly in this time when people are worried about government spending.
Mr. WESSEL: Absolutely. And this is one of the things that was very tricky for the Federal Reserve in taking this policy. But it can't ignore tax and spending policy when it tries to steer the economy. It has to take account of the fiscal winds. And because it sees the economy so weak, and Congress and the president are unable to do anything about it, it's taking this extraordinary step with the risk that people will say: Oh, you're just making it easy for them to keep tax and spend.
INSKEEP: Well, if the Fed is doing that now, is the Fed anticipating that basically, the federal government has run out of room to deficit spend quite so much? The federal government on both the Democratic and Republican sides are now talking about reining in federal spending. Is the Fed going to step up then, and actually pump more money into the economy to try to keep the economy going in that situation?
Mr. WESSEL: No. I think that the federal government has not run out of room. I think the federal government has run out of political will. Mr. Bernanke has said it would be nice if the government did a little more fiscal stimulus now, as long as it was coupled with cutting the deficit in the future. But because they're not doing that, he's doing what he thinks is necessary.
INSKEEP: Rand Paul is a name that got a lot of attention in the election this past Tuesday. He won a Senate seat from Kentucky. But of course, his father, Ron Paul, who ran for president a couple of years back, is still in the House, and it looks like he's going to chair the committee that oversees Ben Bernanke's Fed.
Mr. WESSEL: That's right. Ron Paul, who wrote a book called "End the Fed" - so you know what he thinks ought to happen - he'll definitely give Mr. Bernanke a hard time. But he's really seen as something of an outlier. He's a Libertarian. He doesn't believe in paper money. And I don't think many of the other Republicans are quite comfortable with that view. But it will be interesting to have him in the House and his son, a senator from Kentucky, taking a seat that was vacated by another shrill critic of the Fed, Jim Bunning. So it will be a lot of fireworks there, I'm sure.
INSKEEP: Could this get ugly?
Mr. WESSEL: Look, it got pretty ugly already. We saw the Fed accused of setting a fire, and then taking credit for putting it out. We saw Ben Bernanke almost didn't get confirmed for a second term. I think it will be tense if the economy is bad, because members of Congress and the public will be looking for someone to blame, and Mr. Bernanke is very prominent right now, especially because of this decision to buy so many more government bonds.
INSKEEP: David, thanks very much.
Mr. WESSEL: You're welcome.
INSKEEP: David Wessel is economics editor of the Wall Street Journal.
MONTAGNE: And speaking to David - of course - my co-host, Steve Inskeep.
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