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Walt Handelsman | Tribune Media Services

Fed should do more to pump up economy

The weak jobs report on Friday showed the trends are headed in the right direction but not nearly fast enough. The unemployment rate dropped last month from 8.3 percent to 8.1 percent, but only because more people stopped looking for work, and the economy added just 96,000 jobs. With no immediate help expected from Congress, the person best situated to spur economic growth is Federal Reserve chairman Ben Bernanke. When the Fed meets next week, it needs to take more aggressive action.

The Fed has limited tools available to indirectly encourage more employment, but lately it has been idle while the country's economic growth has slowed from 4.1 percent at the end of 2011 to 1.7 percent in the second quarter of 2012. It's true that the benchmark interest rate has already been cut to near zero — one way the Fed has to make borrowing costs cheaper and stimulate activity — and the Fed has initiated multiple rounds of asset purchases of long-term Treasury bonds and mortgage-backed securities, known as "quantitative easing," where cash is pumped into the economy. That helped increase employment by an estimated 2 million jobs. But Bernanke acknowledged in a recent speech in Jackson Hole, Wyo., that America continues to suffer from a stagnant job market that, if allowed to linger, has the potential to cause "structural damage" to the economy.

The factors Bernanke pointed to as slowing down the economy include spending cuts at the federal and state levels that are tamping down employment and growth, the problematic housing sector, and the crisis in the euro zone. A new stimulus package could forestall state and local government layoffs or begin employing the long-term unemployed. And Congress could change the housing situation by encouraging more relief for underwater homeowners.

But it would be easier to bring rain to drought-stricken land than to get Congress to cooperatively tackle the country's economic woes. Bernanke knows it is up to the Fed. His speech all but promised that additional actions will be taken to foster job creation, quite a departure from the typically abstruse language used by Fed chairmen. The next opportunity to unveil plans is at a policymaking committee meeting next week, and plenty of ideas are being floated, including additional asset purchases and a promise to continue the low interest rate beyond its current forward guidance date of late 2014. Another suggestion is that the Fed could offer low-cost financing for specific areas of lending such as mortgages. That would focus economic aid to the areas most in need of renewed activity.

Republicans are lining up against Bernanke. Mitt Romney, the Republican presidential nominee, objects to any new measures by the Fed and would dump Bernanke if he wins November's election. But at the moment, Bernanke is the best hope unemployed Americans have for some relief.

Fed should do more to pump up economy 09/07/12 [Last modified: Friday, September 7, 2012 6:26pm]
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