According to the Federal Reserve Board's self-published guide to the Federal Reserve, the first duty of the central bank is "conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates." This morning, I was watching a panel at the America's Fiscal Choices conference that included economists Paul Krugman and Martin Feldstein. Krugman proposed some kind of new Fed action to bolster the job market, and Feldstein replied that the idea would never fly, explaining that "within the Fed, they'd say that 'we don't do unemployment, we do price stability.'"
It's not that Feldstein is wrong in assessing the response of Fed officials to demands for a more aggressive monetary policy -- that's the answer we've been hearing from the Fed for the past six months. The problem is that right now prominent economists and the Federal Reserve board blithely recognize that a rather substantial chunk of the central bank's congressionally assigned mission is simply ignored.
Democratic presidents need to get out of the habit of appointing Fed chairs who don't seem to care about maintaining high employment. The Federal Reserve is extremely important, and appointing Republicans like Greenspan and Bernanke to chair it is at least as damaging to progressive causes as appointing a right-wing Supreme Court judge.