By Alexander Bolton - 09/29/11 05:20 PM EDT
Rep. Barney Frank (Mass.) and other Democratic lawmakers say Federal Reserve Chairman Ben Bernanke should do more to stimulate the economy.
While they have praised “Operation Twist,” the Fed’s latest attempt to spur on lending and reduce unemployment, Democrats said the central bank should be doing much more to expand economic growth.
“I think it’s a good idea, but I would have gone further,” Frank, the ranking Democrat on the House Financial Services Committee, said in a statement to The Hill Wednesday.
But Democratic lawmakers have begun to acknowledge that much of it has little chance of passing Congress because of Republican opposition in the House.
That leaves action by the Fed as the most likely way to give a boost to the economy ahead of the 2012 elections, when control of both the White House and Congress will be up for grabs.
“You and I know most of it can’t get through, which is why it’s on the Fed to use every arrow in its quiver and invent more arrows,” said Rep. Brad Sherman (D-Calif.), another member of the Financial Services panel.
“They could do a little bit more twisting, multiply whatever they’re doing by 120 percent or 140 percent. We need to bring down long-term interest rates,” he added.
Rep. Chris Van Hollen (D-Md.) wants the Fed to pay more attention to its mandate to keep the economy humming instead of worrying about inflation.
“Congressman Van Hollen feels the Fed should place a greater weight on its employment mandate than it has in the past,” Nu Wexler, Van Hollen’s spokesman, said. Van Hollen, the ranking Democrat on the Budget Committee, and a member of the deficit-reduction supercommittee, is one of the chamber’s leading authorities on economic issues.
Democrats are soft-pedaling their calls for more Fed action, striking a contrast with Republicans who have been outspoken in their criticism of Bernanke for pumping money into the sputtering economy.
Democrats think the Fed is proceeding too cautiously after Republicans bashed it for risking inflation if it pumped more money into the economy.
A day before the Fed said it would work to lower long-term interest rates by selling short-term government debt and buying long-term bonds, GOP leaders warned against additional stimulus in a letter to Bernanke.
“We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy,” the leaders, including Senate GOP Leader Mitch McConnell (Ky.) and House Speaker John Boehner (Ohio), wrote. They warned action could weaken the dollar or promote more borrowing.
The Fed has also taken a beating from GOP candidates, most famously when Texas Gov. Rick Perry said another round of quantitative easing would border on treason.
“If this guy prints more money between now and the election, I don’t know what y’all would do to him in Iowa, but we — we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous — or treasonous in my opinion,” Perry said in reference to Bernanke.
Jared Bernstein, who served as a senior economic adviser to Vice President Biden, said he agrees with Democratic lawmakers that the Fed should do more to jump-start the economy. But he cautioned there are limits to how much Bernanke can accomplish because households are cutting down on spending and companies are leery to invest.
“I agree with Rep. Frank and Van Hollen that the Fed should do more, but by itself I don’t think the Fed can’t get us out of this mess,” he said. “There’s this problem of pushing on a string.
“You can lower the price of borrowing as much as you want, but if households are deleveraging and firms are sitting on almost $2 trillion in cash reserves, there’s not enough economic activity going on out there to get them off the dime,” he said.
Bernstein noted in his blog last week that Operation Twist had a significant impact on long-term interest rates but argued it would not be enough to create impressive growth if Congress failed to supplement it with stimulative fiscal policy.