WSJ: Fresh Attack on Fed Move

It seems FED is under fire? Will it change their action ?  Very, very likely....  Steen

Fresh Attack on Fed Move

GOP Economists, Lawmakers Call for Abandoning $600 Billion Bond Purchase

By PETER WALLSTEN

WASHINGTON-The Federal Reserve's latest attempt to boost the U.S.
economy is coming under fire from Republican economists and politicians,
threatening to yank the central bank deeper into partisan politics.

A group of prominent Republican-leaning economists, coordinating with
Republican lawmakers and political strategists, is launching a campaign
this week calling on Fed Chairman Ben Bernanke to drop his plan to buy
$600 billion in additional U.S. Treasury bonds.

"The planned asset purchases risk currency debasement and inflation, and
we do not think they will achieve the Fed's objective of promoting
employment," they say in an open letter to be published as ads this week
in The Wall Street Journal and the New York Times.

The economists have been consulting Republican lawmakers, including
incoming House Budget Committee Chairman Paul Ryan of Wisconsin, and
began discussions with potential GOP presidential candidates over the
weekend, according to a person involved.

The increasingly loud criticism of the Fed comes as some economic
officials outside the U.S. are criticizing the central bank's move to
effectively print money, which has the side effect of pushing down the
dollar on world currency markets. President Barack Obama last week
defended the Fed. The move to buy more bonds, known as quantitative
easing, "was designed to grow the economy," not cheapen the dollar, he
said.

The Fed, despite frequent criticism from both parties, has enjoyed
considerable independence from politicians on monetary policy for the
past three decades. Organizers of the new campaign predicted the Fed
will increasingly find itself caught in the political crosshairs,
though. A tea party-infused GOP is eager to heed voters' rejection of
big-government programs, and conservatives say a new move by the Fed to
essentially print more money make it ripe for scrutiny by the incoming
Republican House majority and potentially an issue in Mr. Obama's 2012
re-election campaign.

"Printing money is no substitute for pro-growth fiscal policy," said
Rep. Mike Pence, an Indiana Republican who has been privy to early
discussions with the group of conservatives rallying opposition to the
Fed plan.

He said the signatories to the letter "represent a growing
chorus of Americans who know that we should be seeking to stimulate our
economy with tax relief, spending restraint and regulatory reform rather
than masking our fundamental problems by artificially creating
inflation."

The Fed faces potential pressure of a different sort from the left as
well. Some prominent Democratic congressmen, including the current
chairman of the House Financial Services Committee, have endorsed the
quantitative-easing move.

But if the economy continues to disappoint as November 2012 approaches,
the White House and Democrats in Congress may be pressing the Fed to do
more to sustain the recovery as well.

Some prominent liberal economists, including Nobel laureates Joseph
Stiglitz and Paul Krugman, already have challenged the efficacy of
quantitative easing, arguing that more fiscal stimulus is needed to
restore the economy to health.

Signers of the new manifesto criticizing the Fed include: Stanford
University economists Michael Boskin, who was chairman of President
George H. W. Bush's Council of Economic Advisers and John Taylor, a
monetary-policy scholar who served in both Bush administrations; Kevin
Hassett of the conservative American Enterprise Institute; Douglas
Holtz-Eakin, former Congressional Budget Office director and adviser to
John McCain's presidential campaign; David Malpass, a former Bear
Stearns and Reagan Treasury economist who made an unsuccessful run for a
U.S. Senate seat from New York; and William Kristol, editor of the
Weekly Standard and a board member of e21, a new conservative think tank
seeking a more unified conservative view on economic policy.

A spokeswoman for the Fed said Sunday, "The Federal Reserve...will take
all measures to keep inflation low and stable as well as promote growth
in employment." She noted that the Fed "is prepared to make adjustments
as necessary" to its bond-buying and "is confident that it has the tools
to unwind these policies at the appropriate time."

"The Chairman has also noted that the Federal Reserve does not believe
it can solve the economy's problems on its own," she added. "That will
take time and the combined efforts of many parties, including the
central bank, Congress, the administration, regulators, and the private
sector."

Criticism of the Fed broke out amid the unpopular bailout of Wall Street
and the Senate fight over Mr. Bernanke's second term early this year.

The critiques had ebbed until its new move to buy bonds. But last week,
potential GOP presidential candidate Sarah Palin delivered a stinging
speech on the move and then, in a Facebook post, criticized Mr. Obama
for defending the Fed.

Last Tuesday evening, about 20 economists and others met over sea bass
at the University of Pennsylvania Club in Manhattan and hashed out a
broad strategy. Mr. Ryan, who has gained notice for a plan to balance
the federal budget through deep spending cuts, joined the group as they
discussed ways to encourage the GOP's new House majority to unite behind
what they describe as a "sound money policy."

"We talked about the importance of the right being outspoken and unified
on this," said a participant. Mr. Ryan couldn't be reached Sunday.

Over the weekend, organizers began discussions with possible GOP
presidential candidates, including former Massachusetts Gov. Mitt Romney
and former House Speaker Newt Gingrich. On Tuesday, Mr. Boskin and
another signer, Paul Singer, head of hedge fund Elliott Management, will
brief GOP governors at a conference in San Diego.

"It is unfortunate that economists are over-hyping this and trying to
politicize it," said Bob McTeer, former president of the Federal Reserve
Bank of Dallas and a backer of the Fed's latest step. Mr. McTeer, a
fellow at the National Center for Policy Analysis, a right-leaning think
tank, added: "What populists on the right and the left have in common is
a distrust of the establishment, and to them the Fed personifies the
establishment."

To fight a deep recession provoked by a global financial crisis, the Fed
has been keeping its target for overnight interest rates near zero since
December 2008, and bought $1.7 trillion in U.S. Treasury debt and
mortgage securities to push down long-term interest rates, hoping to
spur borrowing and spending.

That program ended in the spring.

With unemployment at 9.6%, well above its mandate of "maximum sustainable
employment," and inflation running under its target of a bit below 2%,
the Fed policy committee voted to resume bond-buying to try to move
inflation up a bit and unemployment down.

Signatories to the letter criticizing the Fed insisted they aren't
trying to undercut the central bank's independence.

"It's fair to have a public debate about what the right monetary policy
is," Mr. Holtz-Eakin said. "I'm a long way away from being comfortable
with the idea of the Congress running monetary policy."