'Credibility of the Fed' Under Historic Attack: Mishkin

The Federal Reserve is undergoing what former central bank governor Frederic Mishkin is calling an unprecedented level of attacks caused by its inability to articulate a clear message regarding its multitrillion-dollar monetary policies.

Frederick Mishkin
Frederick Mishkin

In a CNBC interview, Mishkin said the Fed has done a poor job justifying its efforts to buy Treasurys and other securities as a way to stimulate the economy—a policy often referred to as quantitative easing.

Washington officials have sharply criticized the central bank, with some recently saying that the Fed ought to lose its dual mandateof controlling inflation and ensuring maximum employment, and focus solely on inflation.

In several decades of studying Fed history, Mishkin said he has never seen attacks more intense. Mishkin is an economist and professor at Columbia Business School and served on the Fed from 2006-08.

"Monetary policy is never easy. You're always the whipping boy. The question is the degree," he said. "Now you're getting whipped with a little bit harder lash than usual. But you've got to make the tough calls and you've got to provide leadership. This is what you do with central banks."

The Fed's latest round of easing—nicknamed QE2—involves buying $600 billion in Treasurys over the next eight months. But Mishkin said the program is likely too small to make a difference.

Indeed,criticism has come at the program from both extremes, with some agreeing with Mishkin's point that the total buying is too low to impact the economy, while others worry that the continued push for liquidity that has nevertheless not made its way into the broader economy poses an inflation threat down the road.

Moreover, the central bank has gotten itself in trouble politically because "the way they communicated this whole strategy is very problematic," Mishkin said.

"The credibility of the Fed has been hurt not only by the issue of not putting this in a long-run context, but secondly by the tremendous dissension from the committee, which again is unprecedented," he said. "I'm a little surprised there hasn't been more done internally to rein this in."

While Mishkin said he was generally in favor of the first round of easing, the Fed will have to do much more to justify its current position.

"The Fed can recover from this. It's not over yet," he said. "But boy they've got a lot of digging out of the hole right now and I hope they proceed in that direction."