Money politics used to be something voters took sides on, but Federal Reserve policy has unfortunately come to be seen as something technical and boring in the modern era. That’s too bad because it’s not really that complicated. Basically there’s a trade-off between full employment and low inflation, and liberals right now ought to be rooting for Team Full Employment.
The Fed can do more to bring unemployment down, but there comes a point where unemployment can’t go any lower, and then we just get rising prices. Are we there now? No. Are we going to be there soon? No. Right now, inflation is low, and unemployment is high. The Fed has plenty of room to do more to bring unemployment down.
What you need to know about the announcement today is that Ben Bernanke said that if we start to see a real recovery, he’s not going to kill it. Lots of people have been hearing Bernanke say that he’ll keep interest rates low because unemployment is high, but have been wondering whether that means he’ll raise rates as soon as the economy starts to improve.
This was confusing, since if you were about to take out a loan for a capital-intensive project like building an apartment building, you wouldn’t have known if you were going to be able to complete the project at today’s low borrowing costs, or if it was going to get more expensive if the economy started to recover. Today Bernanke clarified that he’s not going to raise interest rates for a while into the recovery, even if it means a little inflation, so go ahead and take out that loan for your project.
This is great news for the recovery, and Intrade seems to think that it’s great news for Barack Obama’s reelection prospects: