Recently, the Federal Open Market Committee (FOMC), led by Federal Reserve Chairman Ben Bernanke and with an overwhelming vote of 11 to 1, decided to undertake another round of purchases of mortgage-backed securities, a process known as quantitative easing. That's the technical explanation for their actions. The practical explanation, the explanation that will matter to the 12.5 million Americans who are currently unemployed, is that the Fed decided that it needs to do more to reduce unemployment, and that it is going to use the tools at its disposal to help Americans to get back to work.
Almost immediately, conservatives decried the Fed's decision. Some have even suggested changing the Federal Reserve's mandate, saying it shouldn't focus on lowering unemployment at all -- a very dangerous proposition during our economic recovery. Others have said that the Federal Reserve should stand back, and wait for Congress to take action to stimulate the economy.
Unfortunately, I know all too well that this isn't a problem that Republicans in Congress are willing to fix right now. There's simply too much partisan gridlock in Washington to pass the types of effective fiscal policies that could also lower unemployment.
There are some things Congress can do to stop unemployment from going higher, including addressing the upcoming fiscal cliff. But when it comes to reducing unemployment, the same Republicans who are criticizing the Fed have also consistently blocked legislation, including President Obama's jobs agenda, which would have created new jobs, resulting in an America that is built to last. This type of political obstructionism is why the Federal Reserve, a nonpartisan body, was charged with maximizing employment. The current political situation is a clear demonstration of why the Fed's dual mandate is not only important but also essential.
Actions by the Federal Reserve can never offset the damage done by an obstructionist Congress that refuses to address the fiscal cliff in a balanced fashion, and simply will not work with the president to create jobs. But by engaging in this next round of quantitative easing, and by committing to further actions until the labor market improves substantially, the Fed anticipates that it can lower interest rates, help shore up the housing market, and improve business conditions for investment. The announcement that the Fed expects to maintain the Federal Funds rate to stay below a quarter of one percent until mid-2015 should also have a positive impact on the economy. In short, the Fed, under Chairman Bernanke's leadership, and with a near-unanimous vote of the FOMC, has taken Vice President Biden's advice: It's betting on the American people, not against them.