Bob Corker, a member of the Senate panel with Federal Reserve oversight authority, said the central bank’s decision to embark on a third round of quantitative easing shows Ben S. Bernanke has “stayed too long.”
Corker said the Fed’s asset purchases have alleviated pressure on Congress to come up with a credible fiscal plan that in his view would provide a basis for long-term economic growth.
“I know Ben Bernanke, I respect him tremendously,” the Tennessee Republican said today at a Bloomberg Government breakfast in Washington. “My criticisms of the Fed in large part are about pressure being taken off us.” He added: “If you saw markets swooning downward because we weren’t acting, I think you would see us acting.”
Corker, a Senate Banking Committee member who voted to confirm Bernanke for another term ending in 2014, praised the chairman’s actions during the financial crisis and said the second round of bond purchases, announced in November 2010, was appropriately aimed at halting deflation.
“Ben did a great job during the crisis,” Corker, 60, said in a separate Bloomberg Television interview. “I think he has stayed too long, yes, I am very despondent about much of what he is doing recently.”
Fed spokesman David Skidmore declined to comment.
Bernanke, who has been Fed chairman since 2006, was first nominated by President George W. Bush and picked for a second term by President Barack Obama.
Republican presidential candidate Mitt Romney has said he wouldn’t reappoint Bernanke, 58. Obama hasn’t said whether he would nominate the former Princeton University professor for a third term, and the Fed chairman has declined to discuss his future.
The policy making Federal Open Market Committee announced a third round of quantitative easing Sept. 13, committing to $40 billion in monthly purchases of mortgage-backed securities. The FOMC said the buying would continue “if the outlook for the labor market does not improve substantially.”
“If you focus on the Fed’s role as it relates to price stability, you can understand QE2,” Corker said. “I do think we have gotten out of bounds now.”
The FOMC also said that low levels for the federal funds rate “are likely to be warranted at least through mid-2015.”
Not all Fed officials supported the latest round of bond-buying.
Philadelphia Fed President Charles Plosser said in a speech at the district bank today that the new bond buying risks hurting the Fed’s credibility. Plosser isn’t a voting member of the FOMC this year.
“We are unlikely to see much benefit to growth or to employment from further asset purchases,” Plosser said. “Conveying the idea that such action will have a substantive impact on labor markets and the speed of the recovery risks the Fed’s credibility.”
U.S. stocks dropped, erasing early gains, after Plosser’s comments. The Standard & Poor’s 500 Index was down 1 percent to 1,442.05 at 3:55 p.m. in New York after climbing as much as 0.4 percent. The index is up more than 3 percent since Aug. 30, the day before Bernanke made the case for further action to reduce unemployment in a speech at Jackson Hole, Wyoming.
San Francisco Fed President John Williams said yesterday that he expects the Fed to continue its purchases of mortgage-backed securities into 2013.
“I would also think that a strong case could be made for expanding or continuing purchases of other assets, including longer-term Treasuries,” Williams told reporters after a speech in San Francisco. “At the end of the year, I don’t expect we’ll be making substantial improvements in labor market conditions.”
Corker said regulators are properly moving in the direction of allowing market-making trading in the final version of the so-called Volcker Rule.
The rule, named for its original proponent, former Fed Chairman Paul Volcker, is intended to prevent banks that have federally insured deposits from trading for their own account. It provides exemptions for trades done for market-making and hedging.
“Our concern was about the market-making component of the Volcker Rule, and it looks like the regulators are going to end up where we were, so I actually don’t have any problems,” Corker said at the breakfast.
Corker said the multibillion-dollar trading loss by JPMorgan Chase & Co. was a “learning moment” and helped define what is proprietary trading and what is not.
He said he expects Congress to be willing to make “tweaks” to the 2010 Dodd-Frank regulatory overhaul law, including provisions setting standards for the mortgage market.
“I think after the election you’re going to see a lot of bipartisan efforts to fix a lot of things that should never have been in there,” he said.