Fed pressures Congress to spend

Fed pressures Congress to spend
© Greg Nash

Federal Reserve officials are increasingly making the case that Congress should spend more money to stimulate the economy, with an eye on the infrastructure package that could hit the agenda next year.

Federal Reserve Chairwoman Janet Yellen and Vice Chairman Stanley Fischer have both nudged Congress in recent speeches. They said federal spending that bolsters demand and increases the labor force would take pressure off of monetary policy and help grow the economy.


“There are ways in which the response of fiscal policy to shifts in the economy could be strengthened, which could help take some burden off of monetary policy,” said Yellen in a September press conference.

“Fiscal policy has traditionally played an important role in dealing with severe economic downturns,” said Yellen in an August speech, suggesting work on “improving our educational system and investing more in worker training; promoting capital investment and research spending, both private and public; and looking for ways to reduce regulatory burdens while protecting important economic, financial, and social goals.”

Fischer has offered a more explicit case for congressional action.

“Government policies that boost the economy’s long-run growth rate would be an even better means,” said Fischer in an Oct. 17 speech. “Some combination of more encouragement for private investment, improved public infrastructure, better education, and more effective regulation is likely to promote faster growth of productivity and living standards.”

The most likely candidate for a spending boost next year is infrastructure.

Both Democratic nominee Hillary ClintonHillary Diane Rodham ClintonWe need to be 'One America,' the polling says — and the politicians should listen Poll shows Biden with 6-point edge on Trump in Florida Does Joe Biden really want to be president? MORE and Republican nominee Donald TrumpDonald John TrumpOvernight Health Care: US hits 10,000 coronavirus deaths | Trump touts 'friendly' talk with Biden on response | Trump dismisses report on hospital shortages as 'just wrong' | Cuomo sees possible signs of curve flattening in NY We need to be 'One America,' the polling says — and the politicians should listen Barr tells prosecutors to consider coronavirus risk when determining bail: report MORE have campaigned for president on the idea of increased investments in infrastructure, and congressional leaders have signaled they are open to a deal.

Clinton has proposed a five-year, $275 billion plan to repair and expand roads and bridges, bolster public transportation access, provide more people with broadband internet, refurbish airports and support renewable energy. She also supports an infrastructure investment bank that could issue another $225 billion in loans.

Trump hasn’t gotten as specific with his plan, saying he’d spend “at least double” what Clinton proposed by making “a phenomenal deal with the low interest rates.”  

More broadly, Trump has attacked the Fed’s handling of the economy, accusing Yellen of keeping rates low to boost President Obama’s popularity. He has called the Fed chief “obviously political” and said he’d fire her as president.

Despite bipartisan support for an infrastructure package, passing a bill through Congress is likely to be a difficult climb.

Speaker Paul RyanPaul Davis RyanWho should be the Democratic vice presidential candidate? The Pelosi administration It's not populism that's killing America's democracy MORE (R-Wis.) and Sen. Charles SchumerCharles (Chuck) Ellis SchumerSchumer names coronavirus czar candidates in plea to White House Democrats struggle to keep up with Trump messaging on coronavirus Schumer: Fired inspector general will be remembered as a 'hero' MORE (N.Y.), who is expected to lead Democrats next year, briefly discussed an infrastructure bill linked to a tax reform deal last September. Some are hopeful that the idea could be revived in the next Congress, regardless of the how the election turns out.

Mark Calabria, an economist at the libertarian Cato Institute and former Senate Banking Committee aide, said an infrastructure deal shouldn’t face major obstacles.

“There’s certainly going to be some sort of arguments about how to pay for it and the size,” said Calabria, “but at the end of the day, I think there’s a strong possibility that an infrastructure deal will pass.”

Daniel Alpert, a founding partner at investment bankers Westwood Capital and economist, also sees a deal on the horizon.

“While it may difficult to bring certain things to the floor ... if Hillary walks into this with a sizable mandate and says, ‘I want votes on stuff,’ she will get votes,” said Alpert, who donated the maximum legal amounts to both Clinton and her rival in the Democratic primaries, Sen. Bernie SandersBernie SandersWisconsin Supreme Court blocks governor's effort to delay election The Hill's Campaign Report: Biden, Trump discuss coronavirus response; Wisconsin postpones elections Wisconsin governor postpones Tuesday's election over coronavirus MORE (I-Vt.).

Though Yellen and Fischer’s suggestions align with Clinton and Trump’s priorities, officials at the central bank have to tread carefully with their advocacy.

“Once you start venturing outside of monetary policy as a Fed official, it’s a minefield and you quickly lose credibility in saying that monetary policy should be independent,” said Calabria, who pointed to a long track record of Fed officials offering fiscal prescriptions.

“It’s a very hard to think of a Fed chair that was silent on fiscal policy,” Calabria said.

Alpert added that “it’s perfectly legitimate” for the Fed to say it’s running out of monetary policy options and needs backup from the government.

“They are scared, and I think realistically so, that they have no more bullets, no more ammunition against a recession,” Alpert said.