Business Journal Editorial: Fed’s view of economy departs from White House

Saturday, August 14, 2010, 4:46 pm

For too long, the historically politically independent Federal Reserve has been happy to supplement the Obama Administration’s failed Keynesian fiscal stimulus policies with zero interest rates.

Last week, the Fed reaffirmed its easy money policy by saying it would not shrink its $2 trillion balance sheet as previously planned. Rather, the Fed said it would use proceeds from maturing securities to buy Treasuries and other instruments to try to keep interest rates low for borrowers – if there are any to be found.

That would seem as though the Fed was backing the White House again. But it wasn’t. On two critical fronts Fed Chairman Ben Bernanke has rebuked the White House.

First, there is no building recovery as the White House and Treasury Secretary Tim Geithner have been publicly proclaiming. In fact, said the Fed in justifying its continued intervention, the economy is decelerating.

The second rebuke was on taxes. Mr. Geithner and the White House have been saying the so-called Bush tax cuts should not be extended for couples making more than $250,000. But Chairman Bernanke has made clear he believes all of the Bush tax cuts should be extended, even for the highest income earners. It is no time, he made clear, to raise taxes on struggling consumers and businesses. And Mr. Bernanke also made it clear Washington needs to start imposing some fiscal discipline.

The debate over the extension of the tax cuts goes to the heart of the current administration’s failed economic policies. That failure can be summed up in one word: uncertainty.

Whether it is taxes, financial regulation or health care, the massive legislation coming out of Washington, D.C., has left everyone in a state of uncertainty about what the future holds. Business owners and consumers are frozen in place until they can see with some clarity what is around the bend.

Until there is recognition in Washington of that fact, the chances are slim of any kind of strong, broad-based recovery.