Ben Bernanke, chairman of the Federal Reserve, has persuaded his colleagues to make a bold decision. By a majority of 11 to one, they decided last week to undertake a monthly programme of asset purchases aimed at the labour market. Is this riskless? No. Does it make sense? Yes, because the results of doing nothing would be far worse.
As the press release of the open market committee stated: “If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.” This is also “consistent with its statutory mandate”, to foster “maximum employment and price stability”.
Mr Bernanke elaborated the argument for such action in the speech he delivered last month at the symposium at Jackson Hole, Wyoming, organised by the Federal Reserve Bank of Kansas City. This contained an extraordinary sentence: “The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last many years.” I congratulate Mr Bernanke for this ethical response. I applaud him for recognising that the Fed not only can but should do something about this dire situation.