Tags: Romer | Bernanke | fed | aggressive

Former Obama Adviser Romer: Bernanke Should Be Much More Aggressive

Friday, 24 Feb 2012 07:22 AM

Calling for a “regime shift” in thinking at the Federal Reserve, the former chair of President Barack Obama’s Council of Economic Advisers, Christina Romer, says that the Fed should be “much more aggressive” in dealing with the lackluster economy and should consider more quantitative easing.

So far, the Fed has ridden the brakes on a potential third round of extraordinary easing, popularly known as QE3, instead letting the trillions of dollars already available soak slowly into the economy via the banking system.

It has pledged to keep the benchmark interest rate at nearly zero through late 2014, but nothing more dramatic has been offered so far.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

At least one member, inflation-hawk Dallas Fed Chief Richard Fisher, has said publicly that QE3 simply won’t happen.

Romer disagrees. In an interview with books web site TheBrowser.com, she advocates instead for a “new framework for monetary policy.” Romer said that one way to do that would be to target a path for nominal GDP and compare it to a baseline from before the crisis.

“Compared with that baseline, nominal GDP is dramatically lower today. Pledging to get back to the pre-crisis path for nominal GDP would commit the Fed to much more aggressive policy — perhaps more quantitative easing and deliberate actions to talk down the dollar,” Romer said. “Such a strong change in the policy framework could have a dramatic effect on expectations, and hence on the behavior of consumers and businesses.”

Later in the interview, Romer, now an economics professor at the University of California, Berkeley, characterized the initial moves by the Fed in 2009, as the credit crisis began, as correct. However, she said that its approach since that time has been far too muted.

“By the fall of 2009, the financial system had stabilized but the rest of the economy was still reeling from the fallout and unemployment was heading up to 10 percent,” Romer said. “Instead of further aggressive moves to encourage faster recovery, such as more quantitative easing or a bold communications policy, the Fed essentially took a breather. That was a mistake.”

Minutes of the Jan. 23 meeting of the Federal Reserve’s regional banks reveal that bank directors around the country expect “moderate” growth in 2012. The 12 directors “noted that recent economic data had improved somewhat, but they were cautious about the outlook,” the minutes say.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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2012-22-24
Friday, 24 Feb 2012 07:22 AM
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