What’s going on here? Has Mr. Bernanke been intellectually assimilated by the Fed Borg? I prefer to believe that he’s being political, unwilling to engage in open confrontation with other Fed officials -- especially those regional Fed presidents who fear inflation, even with deflation the clear and present danger, and are evidently unmoved by the plight of the unemployed.Sewell Chan on the president of the Federal Reserve Bank of Kansas City Thomas M. Hoenig:
And in fairness to Mr. Bernanke, discord among senior officials also makes it difficult for policy to change expectations: it would be hard to credibly commit to higher inflation if this commitment were constantly being undercut by speeches out of the Richmond or Dallas Feds. In fact, I’d argue that loose talk by some Fed officials is already having a negative economic impact. But while Mr. Bernanke doesn’t have the authority to stop that loose talk, he could make it clear that it doesn’t represent overall Fed policy.
Last, but not least, policy is suffering from an act of neglect by President Obama, who waited until his 16th month in office before offering a full slate of nominees to fill vacancies on the Federal Reserve Board. If he had filled those slots quickly -- his nominees still aren’t in place -- the Fed might be less passive.
But whatever the reasons, the fact is that the Fed -- which is required by statute to promote "maximum employment" -- isn’t doing its job. Instead, like the rest of Washington, it’s inventing reasons to dither in the face of mass unemployment. And while the Fed sits there in its self-inflicted paralysis, millions of Americans are losing their jobs, their homes and their hopes for the future.
Peter N. Ireland, a professor at Boston College and a former economist at the Richmond Fed, said he was unconvinced. "While there are risks, certainly, of higher inflation down the road, I agree with the consensus that deflation is much more of a concern," he said. "The policy he is calling for is quite off the mark"
Professor Ireland said he feared that Mr. Hoenig’s comments might inadvertently complicate efforts by Mr. Bernanke and other officials to present a unified message. "There’s a tremendous amount of confusion right now, amongst the public and in the financial markets, as to what the Fed is seeing vis-à-vis the economy right now," he said. "This is not to say that dissent is not allowed, but just to say that the way the dissent is being presented to the public seems highly counterproductive right now"