Fed Approach on Quantitative Easing Receives Partisan Criticism

The Federal Reserve’s decision to expand holdings of long-term securities with purchases of mortgage debt drew criticism from Republicans in Congress and support from Democrats.

Republicans cited the Fed’s announcement today as evidence that President Barack Obama’s policies have failed. They questioned whether the central bank is risking further market uncertainty, inflation and its own political independence.

They also questioned whether the Fed’s quantitative easing would do anything to jump start the economy and lower the country’s 8.1 percent jobless rate. Democrats praised the move as needed, particularly given the political gridlock they said has stalled Obama’s economic recovery program.

“Today’s actions make clear that the president’s economic policies have failed to create the jobs he promised,” House Speaker John Boehner of Ohio said in a statement. “Republicans have outlined a better plan and passed more than 30 jobs bills that deserve the support of Senate Democrats and this president.”

Representative Kevin Brady, a Texas Republican who is vice chairman of the Joint Economic Committee in Congress, told reporters that he suspected the Fed’s approach won’t work and will result in “short-term uncertainty in the market.”

Republican Senator Bob Corker of Tennessee said in a statement that Fed Chairman Ben S. Bernanke “is beginning to do serious damage to the Fed as an institution” because “open- ended purchases of mortgage-backed securities will politicize the Fed and add substantially to its balance-sheet risk.”

Market Reaction

The Standard & Poor’s 500 Index jumped 1.6 percent to 1,459.99 at the close of trading in New York. The yield on the 10-year Treasury note rose to 1.74 percent from as low as 1.71 percent.

Democrats are “optimistic it will have a positive impact on the economy,” House Minority Leader Nancy Pelosi of California told reporters. “It already had an impact on the stock market,” she said. “So from a confidence standpoint it has already had an effect.”

Pelosi said the Fed’s action is needed because “Republicans have refused to support many of the initiatives” that Obama proposed to create jobs. If Congress had acted on the president’s job-creation legislation “we could be farther down the road in the economy recovery.”

Senate Banking Committee Chairman Tim Johnson, a South Dakota Democrat, said in a statement that “we should be using every tool in the toolbox to create jobs and spur growth, so it is encouraging to see the Fed continue to take aggressive action to stabilize the overall economy.”

Ohio Republican Representative Pat Tiberi questioned whether injecting more money into the economy would help average people.

“I don’t know how it is going to help Main Street businesses and people who live off of Main Street,” Tiberi told reporters. “We’ve had historic low rates for how long? How does that impact” the economy and “how will that continue to impact people, particularly seniors, who are living on a fixed income?”

To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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