Is an attack from Sarah Palin the best news the Federal Reserve could hope for?
Pimco’s Paul McCulley thinks it may well be. He argues in a commentary posted Wednesday that a growing anti-Fed backlash is actually a sign that Fed chief Ben Bernanke’s unpopular policies are a good bet to actually work.
The recent uproar confirms that Federal Reserve policies amount to “acting irresponsibly relative to conventional wisdom,” McCulley writes. He deems this embrace of quantitative easing, the purchase of $600 billion of Treasury bonds over eight months, “precisely the right approach” for resuscitating an economy suffocating under an enormous debt burden.
It’s not just the domestic critics that McCulley shrugs off, either. He also says pshaw to those in foreign capitals who would whine that a weaker dollar makes their lives harder, boo hoo.
Of course, praise for Bernanke is nothing new for Pimco. Last month Bill Gross spoke up for the Fed chief, saying the blame for the U.S. economic mess must be laid at the feet of voters and the politicians they elect rather than the nation’s financial firefighter in chief.
At the same time, another Pimco talker, Mohammed El-Erian, has laid out the case against quantitative easing, arguing it won’t restart the economy but will leave already flush regions swimming in excess dollars.
McCulley concedes he has “serious gut pains when thinking about” the costs and benefits of the Bernanke approach at a time when the political will for further fiscal stimulus has evaporated and the Fed has yet to fully embrace inflation targeting.
But, he concludes, “that does not mean that one-hat QE2 will be ineffectual.”