Gabor Steingart in Washington
Humiliation for Mr. Dollar: Ben Bernanke, the chairman of the United States Federal Reserve Bank, faces a general investigation by the International Monetary Fund. Just one more example of the Fed losing its power. The United States Federal Reserve Bank, or Fed, seems as much a part of America as Coca-Cola or Pizza Hut. But at least one difference has become apparent in recent days. While the pizza chain and soft-drink maker are likely to expand their scope of influence in the age of globalization, the US central bank is finding that its power is shrinking.
No Fed chief in US history has been forced to submit to the kind of humiliation that Ben Bernanke is facing. This is partly down to circumstances. Inflation is going up and up, and this year’s average will likely top 4 percent. But this time Mr. Dollar is also Mr. Powerless. He can raise interest rates in the fall, or he can pray, which would probably be the better choice. At least prayer would not prevent the US economy from growing, a highly likely outcome if interest rates go up.
After years of growth, the United States is now on the brink of a recession, one that is more likely to be deepened than softened by a tight money policy. Investments will automatically become more expensive, consumer spending will be curbed and economic growth will slow down, immediately affecting unemployment figures and wages. More
Sphere: Related ContentTags: Ben Bernanke, fed, IMF, investigation
June 30th, 2008 at 11:07 am
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July 1st, 2008 at 2:28 am
FINALLY, someone states the obvious, that tightening money at this late stage will just make the looming recession worse. It may delay it by a week, even two, but it’ll just worsen, and lengthen it!
July 1st, 2008 at 1:22 pm
Wrong. Tightening the supply is exactly what we should do. Bernanke just doesn’t have the balls.
“Under parallel circumstances, then Fed chairman Paul Volcker did precisely that in 1979, [raised interest rates] bringing the central bank’s lending rate up to 20% over two years of tightening. Inflation under the Carter regime had run out of control, the dollar collapsed, and the price of oil rose to a then menacing $40 per barrel. After Volcker tightened monetary policy the dollar’s trade-weighted exchange rate doubled and the price of oil fell sharply.”