My answer is yes, but with many caveats.
This Federal Reserve confronted the worst downturn since the Great Depression with the aggressiveness that Milton Friedman argued its predecessor lacked, causing the calamity after 1929. It acted as the lender of last resort, stopping the financial panic and preventing catastrophic bank failures. It cut interest rates to effectively zero, expanded the money supply and undertook extraordinary measures with its bond buying program (quantitative easing or QE), thereby preventing deflation.
As a result, the U.S. economy has recovered more strongly than those of any other developing country. The stock market went on a 66-month rally. Joblessness slowly got better, with the unemployment rate falling from 10 percent in October 1009 to 5.9 percent in September. Growth slowly improved.
Inflation didn’t materialize, despite hysterical warnings. If anything, the problem was that the Fed was too cautious and failed to set a higher inflation target.
Still, the rich got much richer. The Too Big To Fail banks made a windfall thanks to lower borrowing costs. Misery remains with millions still unemployed or underemployed, having lost their houses or underwater in their mortgages, stuck in low-wage jobs or seeing little if any raise in their wages.
But how much of that is the Fed’s fault?
The central bank played a major role in inflating the housing bubble and failing to be a regulatory watchdog before the collapse. But Congress has sustained a ruinous austerity when more stimulus was needed and the Obama administration too often went along. The administration also failed to provide adequate help to homeowners. Both branches saved the arsonists (The TBTF banks) and made them richer. Neither attempted measures to seriously address inequality, although the president at least pushed a minimum-wage increase (blocked by Congress).
I give the Fed an A-minus
What do you think:
This Week’s Links:
• Military spending and U.S. GDP growth | Wall Street Journal
• Why taxation standards must go global | Project Syndicate
• Inflation? Deflation is the new risk | NY Times
• Reflections on the ‘secular stagnation’ theory | Larry Summers/Vox
• Misplaced celebrations on third-quarter growth | Dean Baker
Today’s Econ Haiku:
More transit, big costs
Doing nothing, bigger costs
Green eyeshade ghost. Boo!