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Federal Reserve Chairman Ben Bernanke spoke to the Joint Economic Committee this morning, and as expected, much of the attention was on his expectations with regard to monetary policy. The Fed will, Bernanke explained, pull back from its quantitative easing, but not before the economy shows it can handle the departure.

But as it often the case, what interested me were Bernanke's not-so-subtle hints to lawmakers about their role in making the economy worse.

Bernanke touted the Fed's efforts to lift the economy but warned Congress that the central bank's actions will be insufficient to stave off a drag on the economy caused by rising taxes and spending cuts.

A bevy of fiscal policy issues -- including the expiration of the payroll tax cut, tax increases, budget caps on discretionary spending and the cuts to government spending from sequestration -- are creating headwinds that will "exert a substantial drag on the economy this year," he said.

"Taking them all together, they have the effect of being a drag on economic growth, perhaps more than necessary."

With interest rates near zero, the Fed "does not have the capacity to fully offset an economic headwind of this magnitude." ... "Monetary policy is not omnipotent," Bernanke said.

To be sure, this is all very polite and professional in tone, and I suspect some of the members of Congress on the Joint Economic Committee didn't fully appreciate what Bernanke was saying.

So let's translate a bit: the Fed chairman was telling Congress that taking money out of the economy, as Republicans insist we keep doing, is the one thing holding an American economic recovery. While Bernanke is trying to make it easier for the economy to grow, his efforts are being negated by Congress, which is making it harder for the economy to grow by embracing austerity measures and focusing on deficit reduction. The unsatisfactory status quo is, quite literally, largely lawmakers' fault.

He'd never say this out loud, of course, but Bernanke was effectively trying to argue, "While I'm trying to keep the water out of the boat to keep it from sinking, you guys are inexplicably trying to pour more water back into the boat. Please stop."

This isn't the first time the Fed chairman has pleaded with Congress to get smarter about economic policy, and I'll confess, it amazes me every time.

To reiterate a point we last discussed in December, Bernanke has, over the last few years, occasionally abandoned subtlety and explicitly pleaded with Congress to consider fiscal stimulus, but Republicans have always refused. (Indeed, GOP lawmakers haven't just been content to ignore the need for fiscal remedies, they've also demanded that Bernanke stop trying to improve the economy through monetary measures.)

Bernanke wants Congress to act as a partner, working alongside the Fed to strengthen the economy. Instead, Congress has acted as an opponent, pushing in the opposite direction.

In fact, congressional Republicans see Bernanke's explanation that unnecessary government spending cuts are undermining the recovery, and they respond with two arguments: (1) we need more unnecessary government spending cuts; and (2) the Republican Fed chairman must be some kind of liberal.

And what of the tax increases? Republicans demanded an end to the payroll tax break, too. As for the income tax hikes on the wealthy, they're largely responsible for sharp reduction in the deficit, which is what Republicans have claimed is their top priority.

Associated Press

If you like the status quo in U.S. monetary policy, you'll enjoy Federal Reserve Chairman Ben Bernanke's latest announcement.

The U.S. Federal Reserve stuck to its plan to buy $85 billion in bonds each month to push down borrowing costs and prop up the economy, citing risks to growth from recent budget tightening in Washington.

Describing the economy as expanding moderately in a statement that largely mirrored its March decision, Fed officials cited continued improvement in labor market conditions.

But they reiterated that unemployment is still too high for policymakers' comfort, reinforcing their desire to keep buying assets until the outlook for jobs improves substantially.

The key takeaway from the Fed's policy statement, at least to me, came in these six words: "Fiscal policy is restraining economic growth."

Let's translate that: government spending cuts are hurting the economy.

To reiterate a point we last discussed in December, Bernanke has, over the last few years, occasionally abandoned subtlety and explicitly pleaded with Congress to consider fiscal stimulus, but Republicans have always refused. (Indeed, GOP lawmakers haven't just been content to ignore the need for fiscal remedies, they've also demanded that Bernanke stop trying to improve the economy through monetary measures.)

Bernanke wants Congress to act as a partner, working alongside the Fed to strengthen the economy. Instead, Congress has acted as an opponent, pushing in the opposite direction.

In fact, congressional Republicans see Bernanke's explanation that unnecessary government spending cuts are undermining the recovery, and they respond with two arguments: (1) we need more unnecessary government spending cuts; and (2) the Republican Fed chairman must be some kind of liberal.

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Traditionally, when the economy isn't where it needs to be, policymakers have pushed for various forms of stimulus -- the right has preferred monetary stimulus from the Fed, while the left has preferred fiscal stimulus from Congress. When the economy is in especially dire straits, ideally we'd see both efforts simultaneously.

In 2012, that's a problem. As the Republican Party has moved sharply to the right, it now opposes monetary and fiscal stimulus, abandoning what was conventional thought among conservatives for decades. But as Matthew O'Brien explains, Federal Reserve Chairman Ben Bernanke, himself a Republican, still wishes GOP policymakers would wake up and smell the need for fiscal intervention.

It might not look like it, but forecasting sub-2 percent inflation nowadays is the Fed's way of begging Congress to borrow more. That's the big implication of the Fed's big policy moves the past few months. The Fed is already buying $85 billion of bonds a month on an open-ended basis and has promised not to raise rates before unemployment falls below 6.5 percent or inflation rises above 2.5 percent. But it still thinks inflation will remain subdued, despite its bond-buying.

In other words, the Fed is telling us it will tolerate a bit more inflation, but it won't create it. That's as good an invitation as Congress is going to get to cut taxes or increase spending, at least until inflation is around 2.5 percent.

O'Brien didn't mention it, but it's worth noting that Bernanke, over the last couple of years, has occasionally abandoned subtly and explicitly pleaded with Congress to consider fiscal stimulus, but Republicans have always refused. Indeed, GOP lawmakers haven't just been content to ignore the need for fiscal remedies, they've also demanded that Bernanke stop trying to improve the economy through monetary measures.

For much of the last two years, it seemed at least possible that Republicans hoped for a weaker economy in the hopes that it would undermine President Obama's chances for re-election. But since GOP policymakers continue to oppose efforts to improve economic growth, it's also worth considering the notion that Republicans simply haven't the foggiest idea what they're talking about.

A fragile recovery is underway, and it is within Washington's power to make it a robust one. The federal government can borrow money for free, invest in job creation, and inject capital into the economy to strengthen demand, all while enjoying the benefits of quantitative easing, low inflation, and zero percent interest rates.

This is a textbook case for expansive public investment. So what is Washington doing? It's debating austerity measures.

Bernanke wants Congress to act as a partner, working with him to strengthen the economy. Instead, it's acting as a rival, pushing in the wrong direction.

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Three months ago, the Federal Reserve stepped up with a meaningful economic intervention plan, which was effectively the third round of quantitative easing. Just as important, Fed Chairman Ben Bernanke made an "open-ended" commitment, suggesting efforts will simply continue indefinitely until the economy is in a healthier position.

Most assumed that Bernanke would simply reiterate his support for that policy in his quarterly report this afternoon. Instead, the Fed is actually going much further.

The Federal Reserve is keeping its foot hard on the economy's accelerator amid persistent high unemployment that may be sapping the confidence of consumers and businesses.

The nation's central bank announced Thursday that it would purchase longer-term Treasury securities to the tune of $45 billion per month to maintain a drive to help accelerate the sluggish economy and boost employment.

It also, for the first time, set a specific target for how long interest rates would remain at historic lows near zero percent: as long as the unemployment rate, now at around 7.9 percent, remains above 6.5 percent.

Matt Yglesias called the move "huge," adding that the FOMC "has stopped screwing around and started doing real expectations-based monetary easing."

Keep in mind, there have traditionally been two approaches Washington can take to boost the economy: fiscal measures (government investment) and monetary policy (Fed intervention). Democrats have traditionally preferred the former, Republicans the latter. However, as the Republican Party became radicalized, GOP officials began to oppose both.

I mention this because over the last two years, Bernanke has repeatedly implored Congress -- pleaded with lawmakers, really -- to do something to improve job creation and economic growth, though in each instance, Republicans have ignored his pleas. Indeed, GOP leaders have not only blown off calls for fiscal stimulus, they've in turn pressed the Fed to stop trying to make the economy better.

That means it's up to the Fed -- and only the Fed -- to give the economy a boost. Fortunately, as of today, Bernanke is approaching the task with new ambition and enthusiasm.

Associated Press

It took longer than it should have to get to this point, but it looks like the Federal Reserve is finally stepping up with a meaningful economic intervention plan.

The Federal Reserve opened a new chapter Thursday in its efforts to accelerate the economic recovery, saying that it would expand its holdings of mortgage-backed securities, and potentially undertake other new policies, until unemployment drops sufficiently or inflation rises too fast.

The Fed said that it will add $23 billion of mortgage bonds to its portfolio by the end of September and then announce its plans for October as part of a new process that aims to prioritize the Fed's economic objectives.

The Fed also said, in a statement following a meeting of its policy-making committee, that it now expects to hold short-term interest rates near zero until at least mid-2015, extending the forecast it made in January by about half a year.

Remember, under normal circumstances, the Fed can lower interest rates to boost economic activity, but that hasn't been a credible option for a long while -- interest rates have already bottomed out -- making quantitative easing the main vehicle.

As Brad Plumer explained, "Since the Federal Reserve can essentially create dollars out of thin air, it can buy up assets like long-term Treasuries or mortgage-backed securities from commercial banks and other institutions. This pumps money into the economy and reduces long-term interest rates even further. And when long-term interest rates go down, investors have more incentive to spend their money now."

This round of buying isn't as significant as QE1 and QE2, but the Fed is making an "open-ended" commitment, suggesting efforts will simply continue until the economy is in a healthier position.

Matt Yglesias, who's reported on this extensively for months, called today's move "a huge positive step."

Republicans, who apparently now admit they're concerned about President Obama benefiting politically from a growing economy, will not be pleased.

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In about an hour, the Federal Reserve is expected to announce some kind of strategy for the near future -- possibilities range from doing nothing to an expansive intervention -- with Fed Chairman Ben Bernanke scheduled to speak at a news conference at 2:15 p.m.

Given how little the Fed has done, and how willing Bernanke & Co. have been to let the weak recovery trudge along, many on the left have accused the Fed chairman -- a Republican originally appointed by George W. Bush -- of having partisan motivations. Bernanke, the theory goes, is neglecting opportunities to undermine President Obama's re-election chances.

Oddly enough, with widespread rumors about the Fed taking additional steps today, congressional Republicans suspect the opposite.

"It really is interesting that it is happening right now before an election," said Rep. Raul Labrador (R-Idaho). "It is going to sow some growth in the economy, and the Obama administration is going to claim credit." [...]

While many Republicans have criticized the Fed on economic grounds, an announcement about new stimulus -- which could send financial markets soaring in the run-up to the election -- is likely to bring charges that the bank has partisan aims.

"They are the ones who always say they want to remain independent. So they should consider, just how independent are they when they come out, only 50 days before the election, with this?" said Rep. Scott Garrett (R-N.J.).

Ordinarily, elected officials at least try to maintain the pretense that their principal concern is with the public's welfare. Members of Congress are not, in theory, supposed to root against the economy for purely partisan reasons.

But with Bernanke considering additional steps, some of these Republican lawmakers aren't even bothering to keep up appearances. Labrador concedes he believes Fed action will "sow some growth in the economy," but he's upset anyway -- a better economy might reflect well on the president. Garrett is resorting to almost threatening the Fed -- it's some nice independence you have there, Mr. Bernanke; it'd be a shame if something happened to it.

What matters, in other words, is pre-election posturing, not whether Americans benefit or suffer. For decades, Republicans supported boosting the economy through monetary stimulus; Democrats preferred fiscal stimulus. In the Obama era, Republicans now oppose both, fearing the Obama administration might possibly "claim credit."

I'm not shocked by the cynicism, but it's unusual to see policymakers talk like this openly and on the record.

Associated Press

The most important speech in America this week wasn't heard in Tampa; it was delivered in Jackson Hole, Wyoming.

The Federal Reserve chairman, Ben S. Bernanke, delivered on Friday a detailed and forceful argument for new steps to stimulate the economy, reinforcing earlier indications that the Fed is on the verge of action.

Mr. Bernanke said that the Fed's policies over the last several years have provided significant benefits, but that a clear need remained for the Fed to do more and that, in his judgment, the likely benefits of such actions outweighed the potential costs.

"It is important to achieve further progress, particularly in the labor market," Mr. Bernanke said in his prepared remarks. "Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."

This wasn't an announcement, per se, but it renews speculation about likely action when the Federal Open Market Committee (FOMC) meets in two weeks.

As for the political circumstances, Bernanke, a Republican first appointed to the fed by George W. Bush, continued his long pattern of blaming Republican austerity measures, at least in part, for the weak recovery: "[F]iscal policy, at both the federal and state and local levels, has become an important headwind for the pace of economic growth."

In a not-so-subtle appeal, the Fed chairman added, "Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve."

Or to translate this into English, "For the love of God, Congress, please do something to help the economy. Spending cuts are holding us back, so do the opposite."

The Republican convention just wrapped up, and we heard three straight days of various GOP voices blaming the fragile economic recovery on President Obama. For those who believe this nonsense, it's probably too late to persuade them otherwise, but Bernanke's speech reminds us that it's Republican austerity measures that are undermining economic growth and Republican lawmakers' refusal to consider public investments that have placed all of the pressure on a reluctant Fed.

We may soon see one of the more ironic political developments in recent memory -- voters may replace President Obama because of a struggling economy, rewarding the party responsible for the anemic growth, and punishing the party with the credible solution.

We touched on this briefly yesterday, but Federal Reserve Chairman Ben Bernanke once again presented Washington with some common-sense Keynesian economics yesterday, which once again fell on deaf ears.

Bernanke covered quite a bit of ground over the course of 45 minutes, but in terms of political salience, the comments that were of particular interest were the Fed chairman's complaints about "fiscal restraint at the federal, state and local levels," which he said undermines economic growth.

"[W]e have been seeing fiscal consolidation, particularly at the state and local level, of course, tight budgets have led to a lot of layoffs and cancellation of projects and so on.

"I understand that these are necessary steps from the perspective of individual states and localities; I'm not criticizing that. It's just a fact, though, that these contractions are affecting the pace of growth in the broader economy."

Remember, Republicans, from Mitt Romney to every GOP member of Congress, think this is backwards. Bernanke is trying to make them understand that taking money out of the economy and laying off public-sector workers makes the economy worse, but when the economy gets worse, Republicans blame Obama and call once again for taking money out of the economy and laying off public-sector workers.

We could lower unemployment dramatically today if Congress took Bernanke's advice, but in the eyes of today's GOP, the Republican Fed Chairman, first appointed by Bush/Cheney, is calling for big-government socialism that undermines free enterprise.

The Fed chairman added, by the way, "[M]onetary policy is not a panacea. Monetary policy by itself is not going to solve our economic problems. We welcome help and support from any other part of the government, from other economic policymakers. So collaboration would be great."

This isn't exactly subtle -- Bernanke has been pleading with Congress for two years to consider fiscal stimulus, but Republicans refuse. Then, as the economy slows, they once again blame the president and start the process over again.

Bernanke's reluctance to take bold steps is a constant source of frustration, which may well cost Obama his presidency, but that doesn't change the fact that today's Republican Party still makes him look like a wild-eyed liberal by comparison.

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There were at least tepid hopes that Federal Reserve Chairman Ben Bernanke would announce significant steps to improve the domestic economy today, but he choice otherwise. Republicans are relieved, but they appear to be the only ones.

As was the case two weeks ago, when he not-so-subtly urged Congress to approve fiscal stimulus, Bernanke once again said he would "welcome economic support" from Capitol Hill. That, of course, is no longer an option -- congressional Republicans make no secret of their refusal to act.

But the Fed chairman still isn't willing to step up in a big way, either. Bernanke announced "a modest increase in its efforts to reduce borrowing costs for businesses and consumers by extending its existing 'Operation Twist' asset-purchase program through the end of the year," but chose not to take significant action to accelerate growth or lower unemployment, despite the fragility of the recovery, the slowing job market, and the crisis in Europe.

Repeating a line we've heard before, Bernanke said, "We are prepared to do what is necessary. We are prepared to provide support for the economy." He's just not "prepared" to do anything of any significance right now -- we're in trouble, but not enough trouble to stop the Fed from sitting on its hands.

Jonathan Bernstein argues this is today's most significant political story -- he's right -- adding that there's also "a real divide between the parties on how the Fed should be responding to the weak recovery."

It's true that Barack Obama has not made monetary policy a priority, and has (at least publicly) declined to put any pressure on the Fed to act. But Mitt Romney wants the Fed to go in the other direction entirely: He opposes any further efforts by the Fed to help the economy. He has gone at least half-Paulite and seems far more concerned about (phantom) inflation fears than he does about economic growth.

Indeed, on Sunday, in a little-noticed part of his Face the Nation interview, Romney bashed "politicians" who "want to do everything they can just before an election to try and temporarily boost something" when they should be concerned about "the potential threat down the road of inflation." ... What we have here is Romney also benefiting from a presumption that he cares about economic growth, when in that interview he's explicitly expressing far more concern about inflation.

To believe the Fed should be focusing more inflation, which barely exists, and less on economic growth is to be completely detached from reality.

When Federal Reserve Chairman Ben Bernanke delivered testimony to the Joint Economic Committee yesterday, most of the focus was on potential steps the Fed may consider to boost the domestic economy. And to be sure, Bernanke's willingness to act is critically important.

But there was something else the Fed chairman told lawmakers that stood out for me. MSNBC's "The Ed Show" aired this Bernanke quote last night.

For those who can't watch clips online, the Fed chairman told Congress:

"Monetary policy is not a panacea. It would be much better to have a broad-based policy effort addressing a whole variety of issues. I leave the details to Congress, who have considered many of these issues. I'd feel much more comfortable if Congress would take some of this burden from us and address these issues."

Bernanke, of course, has to maintain a level composure, and isn't in a position to start barking orders on Capitol Hill, but this is about as close as a Fed chairman can get to telling Congress, "For the love of God, do something."

When Bernanke talks about Congress relieving the burden and working in concert with the Fed on a "broad-based policy effort," he's not talking about cutting spending -- which as he'd already testified takes capital out of the economy and slows growth. Rather, the Fed chairman wants lawmakers to approve new investments that, like the 2009 stimulus, would generate demand.

Bernanke, in other words, wants what congressional Republicans refuse to consider. Indeed, it's worth pausing to appreciate the fact that Bernanke, despite being a Republican first appointed by George W. Bush, has been increasingly audacious on this front, telling GOP lawmakers what they don't want to hear.

Here, for example, was Bernanke talking to Congress in November.

"With respect to the current economy we are currently continuing our accommodative monetary policy. We are trying to do our best to support economic growth and job creation. It would be helpful if we could get assistance from some other parts of the government to work with us to help create more jobs." [emphasis added]

In October, the Fed chairman urged Congress to focus on job creation, embracing government spending policies that "support growth." In September, Bernanke pleaded with Republicans not to cut spending in ways that that would hurt economic growth

In August, Bernanke not-so-subtly urged Congress to adopt a short-term stimulus to give the economy a boost. In July, the Fed chairman told Congress that "sharp and excessive cuts in the very short term would be potentially damaging to that recovery."

And yesterday, in a not-so-subtle appeal, Bernanke asked Congress yesterday to share "some of this burden" of economic policymaking.

Republicans, of course, not only choose to ignore Bernanke's advice, they've come to perceive his suggestions in the same light as advice from the CBO, economists, the financial industry, the bond market, business leaders, and economic textbooks -- pesky reality that stands in conflict with far-right ideology, and must therefore be rejected.

Maybe GOP policymakers don't understand economics; maybe they don't want the economy to improve before President Obama's re-election campaign. Either way, there are two basic approaches to Washington efforts to improve the economy -- fiscal stimulus and monetary policy -- and congressional Republicans are fiercely opposed to both.

The Federal Reserve Board of Governors has been burdened by vacancies for the last six years. Last year, Fed obstructionism reached farcical levels when Senate Republicans killed Peter Diamond's nomination to fill a Fed vacancy because he's only the recipient a Nobel Prize in economics and an expert in unemployment. (The GOP said he lacked "qualifications.")

Today, however, that changed.

The Senate on Thursday confirmed two nominees chosen by President Obama for the Federal Reserve Board of Governors, overcoming Republican objections and bringing the seven-member board to full strength for the first time since 2006, before the economic crisis struck.

The Harvard economist Jeremy Stein and the investment banker and lawyer Jerome Powell were confirmed easily after a morning of debate. The vote for Mr. Stein was 70-24, and for Mr. Powell, 74-21.

Scandal-plagued, right-wing Sen. David Vitter (R-La.) had blocked both of the nominations for months, but as the Times report added, "[I]n the aftermath of JPMorgan Chase's recently acknowledged trading losses, which have raised questions about whether the Fed and other regulatory agencies have a tight enough hand on the regulatory reins, Senate leaders found that there were enough votes to get around procedural obstructions under the Senate's rules."

It's worth emphasizing that while both Stein and Powell are nominees of the Obama White House, they were also part of a compromise. While Obama's predecessors didn't have to accept such concessions, after Senate Republicans balked at the president's previous nominees, Obama switched gears, nominating Stein, who worked briefly for the administration in 2009, as well as Powell, who worked for President George H. W. Bush, as well as the Carlyle Group, a GOP-friendly private equity fund.

In other words, today's confirmations came after Obama effectively presented the Senate with a bipartisan pair of nominees -- one who served in a Democratic administration and one who served in a Republican administration.

Nearly half the Senate GOP caucus opposed both nominees anyway, including the former Bush administration official.

Associated Press

In the broadest possible sense, Washington has two main choices to spur economic growth during tough times. Policymakers can rely on Congress and the White House to approve fiscal stimulus that injects capital into the economy, or they can rely on the Federal Reserve's monetary policy. Though actions can vary based on circumstances -- not all recessions are the same -- the left generally prefers the former, while the right prefers the latter.

In the Obama era, Republicans oppose both.

We know the GOP is willing to fight tooth and nail to reject any efforts at public investment to create jobs and spur economic growth. What's less known is that Republicans are equally disgusted by the idea of Fed intervention to improve economic conditions.

This isn't necessarily new. Last year, Senate Republicans killed Peter Diamond's nomination to fill a Fed vacancy because he's only the recipient a Nobel Prize in economics and an expert in unemployment. As Matt Yglesias explained this morning, GOP efforts to make expansionary monetary policy impossible are only getting worse.

The good news is that there are two open seats on the Federal Reserve Board of Governors and the Board members get automatic seats on the Open Market Committee. So in principle by filling those seats with two people who are equally committed to monetary expansion as Bernanke -- or even better, people who are more committed -- the White House and the Senate could provide a powerful boost to economic growth.

But Senator David Vitter (R-Louisiana) doesn't want that to happen, and has placed a hold on Obama's two nominees saying: "I refuse to provide Chairman Bernanke with two more rubber stamps who approve of the Fed's activist policies."

Vitter, in other words, like the jobless rates right where it is or perhaps wishes it were even lower.

For those who suspect congressional Republicans are deliberately trying to drag down the economy in the hopes of undermining the Obama presidency, the GOP's actions with regard to monetary policy offer powerful evidence.

Over the last three years, congressional Republicans have gone to almost comical lengths to stop the Fed from even trying to improve the economy (while fighting equally hard to stop Congress from also trying to improve the economy). In November 2010, GOP lawmakers went so far as to say they wanted to change the Federal Reserve's mandate so that it would stop taking steps to lower unemployment. As recently as a couple of weeks ago, National Journal reported that Republicans have effectively bullied the Fed into paralyzed inaction, and since Obama's choices to fill vacancies are blocked by knee-jerk, incoherent opposition, nothing changes.

Remember, it's within the Fed's power to pursue policies that would boost the economy, but Republicans are actively opposed to any such efforts, almost acting as if they want a weaker economy on purpose.

This quote from Senate Minority Leader Mitch McConnell (R-Ky.) continues to resonate: "The single most important thing we want to achieve is for President Obama to be a one-term president.... Our single biggest political goal is to give [the Republican] nominee for president the maximum opportunity to be successful."