Two big economic issues are dominating Washington, D.C., at the moment: negotiations in Congress over the federal budget and deliberations at the Federal Reserve about when to rein in the Fed’s extraordinary easy-money policy. The two are more closely related than most people may realize.
Many members of Congress have criticized the Fed for leaving the monetary stimulus plan known as quantitative easing in place for too long, claiming it distorts the normal functioning of markets and could ultimately cause inflation. Yet one big reason QE remains in place is that Congress is doing its own job so poorly. The Fed’s aggressive policies may even enable Congressional dysfunction and harmful political antics such as the October government shutdown and ongoing brinkmanship over whether to honor the government’s debt.
By some accounts, the Fed was prepared to begin curtailing QE in September but didn’t because of concerns about the budget standoff looming a few weeks later. By October,Read More »from How the Fed Enables a Do-Nothing Congress