Strategic Decisions Lie Ahead for Four Leaders
Author: David Wessel</br></br>Four men now face strategic decisions that will shape the political economy of the U.S. for the next couple of years: President Barack Obama, Republican congressional leaders John Boehner and Mitch McConnell, and Federal Reserve Chairman Ben Bernanke.</br></br>For Mr. Bernanke, the question is what would prompt the Fed to buy even more U.S. Treasury bonds than now planned. Unable to cut short-term interest rates further, Mr. Bernanke figures that printing $600 billion more to buy bonds will push down long-term interest rates (to spur a bit more borrowing), boost stock prices (to make people wealthier so they spend more) and depress the dollar (to give U.S. exports a lift).</br></br>Justifying last week's move, the Fed pointed to inflation below its 2% target and unemployment well above its "maximum sustainable employment" mandate. In part because key officials don't agree, the Fed didn't spell out under what circumstances it would keep buying beyond next June.</br></br>If inflation remains too low and unemployment too high, does the Fed buy more? Or does it only keep buying if its economic forecast worsens? What if it succeeds in getting everyone to anticipate 2% inflation, but unemployment remains high, does it buy more? If not, how does it explain that to American workers?