Federal Reserve Chair Ben Bernanke

Realistically, it’s not all that worth discussing the American Jobs Act as a policy matter, because unless the President uses the Super Committee, the plan is fairly DOA. Republicans may cut it to ribbons and pass the parts they like, but that’s about it. And the Super Committee option, which would require the President to say that he’d veto any bill from the panel without the American Jobs Act in it, means that there’s no relief for the economy until at least December.

So thoughts turn to monetary policy, and yesterday we saw at least some movement toward some action on that front. In addition to Charles Evans of the Chicago Fed talking unusually rationally about the crisis of high unemployment, Ben Bernanke hinted at more steps:

Ben Bernanke’s speech today in Minneapolis is extremely similar to some things he’s said previously, but this time around in addition to reiterating that “the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus” he also concluded by saying that “the Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability.” […]

Bernanke, unlike some commentators, has never said that the Fed is out of ammunition. He’s always maintained that they have additional tools, so the implication has always been that the tools aren’t being used because the Fed has believed the situation is okay. Now, though, he’s blocked out extra time at the September meeting to discuss those tools with his colleagues and he’s saying that the Federal Reserve will do all that it can.

It’s not like inflation should be any kind of drag on the Fed’s options. And they have a few. Eliminating the reserve payment subsidy for banks parking their money at the Fed is one; communicating the desire for a higher inflation target is another; the Operation Twist thing of trading short-term for long-term bonds is a third. The first two could have payoffs.

Bernanke has political pressure on him from the right to do nothing. And a lot of the Fed’s policies over these last few years of the Lesser Depression have been self-limiting. But with Congress the way it is, it’s one of the few bullets left in the chamber.

David Dayen

David Dayen