The Economy Is in Congress’s Hands, Now

Plant Money

Source: http://www.flickr.com/photos/76657755@N04/

“Cautiously optimistic” is kind of a tired phrase, but it appears to be how U.S. Federal Reserve Chair left a group of Democratic senators feeling about the economy after he spoke at a private lunch on Thursday. Bernanke himself didn’t offer any comments to the press, but Democratic policymakers were quick to share his diagnosis of the economic situation.

Not missing a political heartbeat, Senate Majority Leader Harry Reid (D-Nev.) quoted the Fed Chair on the Senate floor. Arguing in favor of extending federally funded unemployment insurance benefits, which expired at the end of December, Senator Reid said that Bernanke “talked about the vibrancy of this economy now. He said it’s not as good as it should be. But he said: ‘With a little bit of help it would be on fire.’”

Reid’s position is clear, and it actually seems to echo an argument that Bernanke has made repeatedly over the past several years. Monetary policy is at full throttle — call it expansionary, or accommodative — and the economy is still running below potential. The stimulus provided by the Fed has been counteracted to a large degree by contractionary fiscal policy, which takes the form of tax increases (or, the expiration of tax holidays) and spending cuts.