One of Mitt Romney’s top economic advisers says that the Federal Reserve’s aggressive move last week may be more like a drop in the bucket.
The Fed announced an aggressive stimulus program Thursday aimed at combating high unemployment and slow growth. The new round of bond-buying, or quantitative easing, has an open-ended duration. In addition, the Fed announced it would keep short-term interest rates near zero until 2015 -- a year longer than the central bank had promised previously.
“I just don't think it’s going to be very effective at all,” Glenn Hubbard, the dean of Columbia Business School and one of the Republican presidential candidate's main economic advisers, told The Huffington Post. “This is trying to use monetary policy to try and solve problems that are structural and fiscal.”
But Fed chairman Ben Bernanke has said as much. When he testified before Congress in June he asked for lawmakers’ help in fighting the sluggish economy.
“I would be much more comfortable if, in fact, Congress would take some of this burden from us and address those issues," Bernanke said at the time.
When he announced the bond-buying program Thursday, Bernanke acknowledged that “it’s not going to solve the problem.”
Hubbard echoed Bernanke’s assessment of the new round of bond-buying, telling HuffPost “it would be naive to believe that what the Fed has done will bring the economy to full employment.” Still, he didn’t blame the chairman for not being able to solve the country’s economic woes. Instead, he argued that the “uncertainty of fiscal policy” -- like whether tax rates are going to go up or down, and what budget and housing policy will look like in the next few years -- is what’s holding the economy back.
“The two presidential candidates have diametrically different positions and it’s a question of which one prevails,” Hubbard said.
While the Fed’s move may do little to change the economic outlook, according to Hubbard, it still sparked widespread criticism. Romney called the stimulus “artificial and ineffective,” while other critics went even further, claiming it would boost the risk of inflation. Some have even argued in the past that the Fed’s decision to try and boost the economy so close to an election may be a political move, but Hubbard said he doesn’t “question the chairman’s motives.”
In fact, Hubbard has said in the past that Bernanke should “get every consideration” for another term. But that may only be the case if Obama wins a second term; Romney told Fox Business last month that if he's elected, he'll hire a new Fed chief.