The Federal Reserve needs to take bolder action to help pull the economy out of its torpor, says Christina Romer, former chairwoman of President Barack Obama's Council of Economic Advisers.
The economy grew 2.5 percent in the third quarter, and unemployment stands at 9 percent.
"The Fed has a dual mandate. It’s supposed to care about both inflation and unemployment,” the University of California, Berkeley economics professor tells Yahoo.
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“Right now it's missing both those targets, especially the employment target by at least a factor of two. The Fed is absolutely failing terribly on the second target.”
(Associated Press photo)
Some conservatives have argued that the central bank and chairman Ben Bernanke already have done too much easing, raising the risk of inflation down the road.
Romer doesn’t see it that way. “To my mind the real risk is the Fed doing too little," she says. "I think they're currently doing too little and worry they will continue doing too little."
The first thing the Fed should do is target nominal GDP, she says. “The Fed would say we’re going to take some aggressive action . . . to go through a period of very rapid growth,” Romer says.
The Fed obviously doesn’t think it’s that simple.
“The central bank is grappling to use tools in an environment in which it clearly feels somewhat limited in its ability to impact the mortgage market and impact the economy,” Bruce Kasman, chief economist for JPMorgan Chase, tells Bloomberg.
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