On the fifth anniversary of President Barack Obama
's fiscal stimulus, defenders of the policy were out in force making the case that it worked. Most of their arguments failed to address the strongest reason for doubting that it did much good.
That reason has to do with the Federal Reserve
. To the extent that the central bank has a target for inflation (or nominal spending), and has the power to hit that target, the Fed constrains the power of fiscal policy. If Congress tries to stimulate the economy during a slump, for example, the Fed will offset that stimulus by loosening money less. Some of this offsetting will actually be automatic, based on market expectations that the Fed will stay on target.