Will Bernanke Get it Right This Time?

Federal Reserve Chairman Ben Bernanke has apparently done just one of two things: provided liquidity to the U.S. economy as if he shot it with a low-yield water pistol, or mis-fired his monetary bazooka and distracted everybody with the explosion.

At least, this seems to be the consensus among observers, and the decision he will make after a two-day meeting this week is expected to be in-line. Economists are predicting that the Fed will begin a $45 billion-per-month bond-buyback program after Operation Twist expires, and observers are hashing out how they feel.

Regardless of the perceived effectiveness of Bernanke’s policies, Steven Oliner, a resident scholar at the American Enterprise Institute and former Fed Board adviser got it right when he said, “We are deep into experimentation at this point.” The Fed is trying to fix an economy that is uniquely broken, and nobody can prove that they have the right answer.

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In that light, it’s hard to blame Bernanke for making a decision and sticking to his guns. There has been no blatant, overriding reason for him to change course and steer Fed policy away from monetary easing. The biggest obstacle in his way looks to be the fiscal cliff, but Bernanke is not captain of that ship.

His policies to date have been thoroughly examined by analysts, economists, business leaders, the media, and any observer with a stomach for the economic news cycle. In September, Bernanke announced quantitative easing round three, in which $40 billion in mortgage-backed securities would be bought per month until economic conditions improved — that is, indefinitely.

Critics asked the obvious question: How do you define “improved”? What thresholds will need to be met, how far does unemployment have to drop, where should interest rates be?

So far, the Fed has been mute on the topic…