FOMC Has Been Using Open Thesis

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However, the same Republicans in the House and Senate who resisted the passage of the last stimulus bill, despite double-digit unemployment, are agitating for Ben Bernanke to raise interest rates and to curtail the expansive open market operations policy. They also said that the bank bailouts "rewarded" failure, despite the risks of global insolvency posed by mass bank failures (Isidore 2009).

While the Fed certainly could have been more proactive in preventing the credit crisis and recession by demanding greater regulation of creative financial instruments like derivatives and not setting interest rates at historically low levels during the last recession after the dot.com bubble burst, the Fed's policy at present seems sound. Regarding the continued high rate of unemployment, the Fed cannot create jobs: that is a simulative tool that lies in the hands of the federal government, and was the justification for the size of the last stimulus bill.

Bernanke must be given credit for putting aside the Fed's traditional concerns and ignoring calls to pursue a tight-money policy as the economy shows signs of growth, but employment figures continue to falter.

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It is "part of the Fed's job description to worry about unemployment," as according to the Federal Reserve Act, which created the Fed, the Fed should seek: "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates" (Indiviglio, 2009). Price stability has traditionally been the Fed's first priority, as most Fed chairmen have believed that when inflation is low then other signs of economic health "will follow. [But] Of course, at a time like now, that isn't working out too well. Unemployment has climbed into double-digits while inflation is hardly a worry in the near-term" (Indiviglio, 2009).

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