Fed chief steps into politics

Associated Press

WASHINGTON

Before he took charge of the Federal Reserve in 2006, Ben Bernanke vowed to steer clear of political issues. Nowadays he seems to have an opinion on everything.

The latest example came Wednesday, when the Fed chief told Congress that a House Republican plan to cut $61 billion in federal spending this year would cost the economy jobs.

Both sides seized on his remarks: Democrats said there was evidence that the cuts would pose a risk to the economic recovery, while Republicans pointed out that Bernanke’s estimate of job losses was much smaller than that of most private economists.

Historically, the Fed has strived to be perceived as politically independent. But at a time of 9 percent unemployment, Bernanke is finding that image hard to maintain. In bad times, economics and politics are always intertwined.

When Bernanke was tapped by President George W. Bush in 2005 to run the Fed, he promised lawmakers at his confirmation hearing: “I will be strictly independent of all political influences.”

Fed watchers took it as a welcome change. Bernanke’s predecessor, Alan Greenspan, frequently weighed in on politically charged issues during his 18 years at the helm — from endorsing Bush’s tax cuts to how to fix Social Security.

A lot of economists thought Bernanke, who spent most of his professional life before the Fed post as an economics professor, would be different. He has turned out to be anything but.

In recent months, he waded into the debate over how much debt the government should be allowed to take on, warning Republicans not to use the debt limit as a “bargaining chip” in discussions over how to reduce the federal deficit.

Last year, Bernanke pushed Congress to provide additional stimulus to prop up the economy. They did. Congress and President Barack Obama cut a deal just before the new year for cuts in the payroll tax, leaving Americans with more take-home pay.

On Wednesday, Bernanke told the House Financial Services Committee that proposed Republican cuts could cost the economy 0.2 percentage points of growth. “That would translate into a couple hundred thousand jobs. So it’s not trivial,” he said.

Private economists have suggested the damage would be worse. Mark Zandi, chief economist at Moody’s Analytics, has estimated the GOP plan would cost the economy 700,000 new jobs by the end of next year. Bernanke says that figure is too high.

It’s a critical time for the economic recovery. The latest Fed survey known as the Beige Book, released Wednesday, found the economy expanding throughout the country, but businesses reported they are under pressure to raise prices.

The danger for Bernanke in politicizing the Fed, some economists and academics says, is that it makes it easier for Congress and the White House to pressure the Fed to make decisions that are politically popular but not good for the economy.