The nomination of Janet Yellen to chair the Federal Reserve has come down to this: a referendum on quantitative easing and zero interest rates. The money-printing program that Ben Bernanke started five years ago this month remains Yellen’s answer for how the economy will get back on solid ground. Yet in her appearance at Thursday’s Senate Banking hearing, a bipartisan group of senators expressed dismay that Fed money printing has widened the wealth gap while fueling potential asset bubbles.
Whatever air was left in the tank of quantitative easing was let out early last week when former Fed official Andrew Huszar, the director of its $1.25 trillion mortgage-backed security purchase program, wrote a devastating Wall Street Journal op-ed, “Confessions of a Quantitative Easer,” in which he declared the program “the greatest backdoor Wall Street bailout of all time.” Huszar disclosed that he and other Fed managers expressed their concerns about this outcome early on, but they were ignored as the Federal Open Market Committee moved from a macroeconomic to a more special interest rationale. “Now the only obsession seemed to be with the newest survey of financial-market expectations or the latest in-person feedback from Wall Street’s leading bankers and hedge-fund managers,” he wrote.