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Larry Meyer on the Politicization of U.S. Monetary Policy

"Politicization" is the wrong word here. I would call it simply another example of how the Republican Party is not serious about government and policy, and how we would all be better off if it simply withered up and blew away:

Macroadvisers: Meyer's Musings: The Politicization of U.S. Monetary Policy: The FOMC’s move to resume large-scale asset purchases (LSAPs) was a controversial one.... The hawks on the Committee opposed this move and have been, as usual, very vocal after the meeting, loudly proclaiming their opposition. Outside the Committee, foreign government officials (principally finance ministers) have opposed the move.... Now, there is also a domestic backlash outside the FOMC. We remain steadfast in our view that the Fed will stay the course on its LSAPs plans....

What is disturbing about recent developments is the politicization of monetary policy. Notable Republican politicians have teamed up with a handful of mostly Republican economists to criticize the Fed’s actions in a politically-charged manner.... [T]he President’s defense of the Fed’s actions... triggered an automatic and reflexive reaction among some Republicans: If the President supports Fed policy, they must oppose it. It was as if Sarah Palin’s call for the Fed to “cease and desist” was all that was needed to make other Republican politicians quickly fall in line.

Those who know me know that I hate to be embroiled in a senseless partisan debate.... [W]e have worked for Republican and Democratic Administrations alike.... We were particularly troubled by the open letter to the Chairman.... The fact that (almost) only Republicans signed this “open letter” confirms that the Fed has become a political, partisan issue. That’s not healthy... as long as the Fed’s independence is respected and reaffirmed. By the tone of their criticism and the company they kept—mostly Republicans and other right-wing ideologues—the economists who signed the letter undermined their credibility to conduct the dispassionate analysis we are all trained to do.

We did take some comfort, however, in the fact that many of the most respected Republican-leaning economists did not sign this letter....

For our part, we will continue to study monetary policy issues in a dispassionate way, hopefully contributing to the serious work that needs to be done: Will LSAPs work What’s their effect on longer-dated yields? Is the monetary transmission mechanism still working? What is the best model of inflation dynamics?... What are alternative instruments available to the FOMC that might be more effective than LSAPs, and what is the role of fiscal policy? The answers to the above questions do not call for either a Democrat or a Republican response. What we need is serious empirical and modeling work that stands up to responsible peer review and scrutiny.

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