The lukewarm statistics released Wednesday by the Commerce Department should serve as a grim reminder to Congress and the White House that economic growth remains sluggish as we approach the fifth anniversary of the 2008 financial crisis.
The tepid 1.7 percent growth rate in the second quarter of 2013 was the third straight quarter of growth below 2 percent. Such growth hasn’t been enough to reduce unemployment, which remains stubbornly high at 7.6 percent as of Wednesday. Unsurprisingly, Federal Reserve Chairman Ben Bernanke voiced caution that afternoon, declining to offer a timetable for his planned drawdown of the central bank’s so-called quantitative easing policy, which has been purchasing $85 billion per month in bonds since September 2012.
Bernanke’s bond buybacks have been described by critics as “pushing on a rope,” since they’ve eased the balance sheets of major banks but haven’t stimulated an economy hamstrung by lack of demand. And even Bernanke’s defenders admit quantitative easing is an imperfect solution at best that can only alleviate the economy’s biggest woes indirectly by loosening the market for credit.
Fortunately for the Fed chairman, inflation — the supposed Achilles’ heel of his loose-money policy — hasn’t yet become a problem, as it remains below the 2 percent threshold at which Bernanke has said bond purchases would have to cease. More threatening than inflation, Bernanke recently testified to the House Financial Services Committee, is Congress’ propensity for self-destructive fiscal policy.
“The economic recovery has continued at a moderate pace in recent quarters despite the strong headwinds created by federal fiscal policy,” Bernanke said July 17. “The risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery.”
House Speaker John Boehner shrugged off the Fed chairman’s fears with the usual boiler plate, saying July 23: “Well, I think what the chairman’s referring to is the fact that we’ve got spending that continues to be out of control, a red tape that’s out of control.”
And it appears neither Boehner nor Senate Minority Leader Mitch McConnell are interested in the proposals floated recently by President Barack Obama on his speaking tour. McConnell on Tuesday said Obama’s plan “lacks meaningful bipartisan input” and ruled out any corporate tax overhaul that isn’t “revenue neutral.”
But push will soon come to shove. Bernanke has said publicly for months that quantitative easing can’t go on forever given the threat posed by inflation. Congress and Obama should make sure the economy’s growth is self-sustaining before the chairman shuts off the spigot.