That additional monetary stimulus would help the economy. That is the only sense I can make of the letter from Republican leaders in Congress sent to Federal Reserve Chairman Ben Bernanke asking him to refrain from further monetary stimulus. They may realize that a truly bold monetary stimulus program like FDR’s original quantitative easing program of 1933-1936 can turn a depressed economy around and affect political outcomes. If so, this understanding would also explain Governor Rick Perry’s comments about Bernanke committing treason if he printed more money before the election. It would be truly tragic if in fact these politicians were making this tradeoff between political gain and economic gain.
There is, though, a silver lining to these developments. Marcus Nunes notes that the congressional letter actually opens the door for the Fed to do something bold if they can justify it:
But you don´t have to read far [in the letter] to see the message Bernanke should heed:
They said Fed officials should avoid further action, “particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.”
Yes, the GOP just gave Bernanke an opening to establish a NGDP target!
As Josh Hendrickson recently explained in the National Review, nominal GDP targeting is consistent with Republican ideals and provides an opportunity for the GOP presidential candidates to promote a meaningful rule-based approach to monetary policy. I concur and have similarly argued that a nominal GDP target would provide Republican lawmakers a way to narrow the Fed’s mandate. I hope they are listening.