One of the signers of the open letter to Federal Reserve Chairman Bernanke opposing QE2, Douglas Holtz-Eakin, a former director of the Congressional Budget Office and an economic adviser to the McCain presidential campaign, did a conference call today about the QE2. He likened it to "trying to tow a Mack Truck with a gerbil," and he also warned that QE2 now takes the potential use of the policy off the table for future use in case the economy worsens. He also said it could "create inflation" and undermine the Fed's independence.
I asked him if this was just a dispute over monetary policy or if it was going beyond that to a dispute over the existence of the Federal Reserve, a return to the gold standard, or an adjustment of the Fed's dual mandates for full employment and price stability.
"I'm not questioning the existence of the Fed, I'm not arguing for a gold standard," Mr. Holtz-Eakin said. He said he can understand the use of a debate over whether the Fed should have a mandate focusing on employment or whether it should focus solely on price stability. But he indicated he didn't think a debate over the existence of the Fed is particularly useful. "I don't think we should go back to the gold standard," he said.
I asked him whether the "independence" of the Fed meant that it wasn't accountable. "Independence shouldn't mean lack of accountability," he said, noting that Fed officials are appointed for limited terms and testify before Congress regularly.
"The Fed has a job," he said. "Lender of last resort."
But he said "there is no liquidity crisis out there, there is no financial crisis," so "I just choose to disagree" with Chairman Bernanke and with those, like the president of the Chamber of Commerce, Thomas J. Donohue, who support the quantitative easing.