THE RACE: Fed move lifts its political profile

Associated Press

TOM RAUM, Associated Press

Updated: Sep 14, 2012 11:51 AM

The Federal Reserve under Chairman Ben Bernanke is trying help the economy by doing something President Barack Obama and Congress can't and which Mitt Romney opposes: electronically creating money, mostly out of thin air.

The Fed says it will "buy" $40 billion a month in mortgage bonds until stubbornly high unemployment eases substantially. The Fed's new move is on top of its $85 billion-a-month purchases of Treasury securities under an existing program.

It hopes to hold down long-term interest rates long enough to stimulate more private-sector borrowing and hiring.

Democrats generally welcomed the step, although Obama's camp won't comment on Fed actions. Republicans called it further confirmation that Obama's policies are failing.

"The president's saying the economy's making progress, coming back. Bernanke's saying, 'No, it's not. I've got to print more money,'" Romney told ABC.

If elected, the Republican says he won't reappoint Bernanke when his chairman's term expires in January 2014.

The Fed has kept a key short-term rate — on loans between banks — near zero for over three years and pumped hundreds of billions of dollars into the financial system.

Fed chairmen risk being accused of playing politics so close to a presidential election. "We make our decision based entirely on the state of the economy," Bernanke insisted.

Democrats still blame Fed Chairman Arthur Burns for over-stimulating the economy in 1972 to help President Richard Nixon. President George H. W. Bush partly blames his 1992 defeat on tight policies of Fed Chairman Alan Greenspan.

Greenspan's later more market-friendly policies likely helped President Bill Clinton's 1996 re-election.

Bernanke's move carries big risks. Many economists doubt it will have the desired effect — and could trigger high inflation down the road.

Romney campaigned Friday in Ohio, while Obama traveled to Andrews Air Force Base to pay respects at the return of the remains of U.S. Ambassador Chris Stevens and three other Americans killed in an attack on the U.S. Consulate in Benghazi, Libya.

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