Fed at precipice as it moves to boost economy By Neil Irwin Washington Post Staff Writer Monday, November 1, 2010; A01,A18
The Federal Reserve is preparing to put its credibility on the line as it rarely has before by taking dramatic new action this week to try jolting the economy out of its slumber. If the efforts succeed, they could finally help bring down the stubbornly high jobless rate. But should the Fed overshoot in its plan to pump hundreds of billions of dollars into the economy, it could produce the same kind of bubbles in the housing and stock markets that caused the slowdown. Or the efforts could fall short and fail to energize the economy, leaving a clear impression that the mighty Fed is out of bullets - thus adding even more anxiety to an already dire situation. The meeting of Fed policymakers Tuesday and Wednesday is set to be a defining moment of Ben S. Bernanke's second term as chairman of the central bank. Although he helped win the war against the great financial panic of 2008 and 2009, he now risks losing the peace if he fails to end the protracted economic downturn that followed. Just two years after the world financial system nearly collapsed, it is again gutcheck time for Bernanke. "The greatest risk for the Fed in taking this action is that it could extend the economy's funk by giving a sense that either no one is in charge or that the people who are in charge can't get it right," said David Shulman, senior economist at the UCLA Anderson Forecast. "The whole psychology of that could leak back into the economy." Jobs and prices
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