Sen. Pat Toomey is right to insist that any Covid relief bill include language terminating the Federal Reserve’s emergency lending facilities by the end of this year (“Hijacking the Fed to Bail Out States,” Review & Outlook, Dec. 18). These facilities go well beyond the provision of liquidity and threaten to further erode the Fed’s independence.
The emergency facilities constitute fiscal policy, which is properly the domain of Congress, and there is no evidence that the facilities helped the Fed meet the increased demand for liquidity brought on by the pandemic. The Fed’s job is hard enough without demanding that it also lend directly to small businesses, corporations and state governments. Congress should terminate these facilities immediately so that the Fed can focus on what it does best: providing liquidity.
Assistant Prof. Bryan Cutsinger
Angelo State University
San Angelo, Texas
Your Dec. 17 editorial (“The Fed’s Stimulus Paradox”) correctly notes that the U.S. central bank must walk a difficult political-economic tightrope. But you overlook the Federal Reserve’s biggest problem: its lack of credibility.
The Fed announced its switch to average inflation targeting in August. It is now supposed to be allowing periods of higher-than-2% inflation to make up for periods of lower-than-2% inflation. Despite this, inflation expectations remain anemic. They’re currently at 1.9%, the highest they’ve been since the announcement. But this isn’t high enough to make up for the lost economic activity the Fed permitted by misfiring in the past.
Markets are sending the Fed a clear message: We don’t believe you. Nor should they. The Fed erred badly by dabbling in credit allocation during the darkest days of the Covid-19 crisis. Now it seems more concerned with fighting global warming than basic monetary policy. Our current crop of central bankers flunks Central Banking 101: Good intentions mean nothing without credibility.
Associate Prof. Alexander W. Salter
Texas Tech University