Writing in Slate magazine in 1997, Paul Krugman, an American economist, neatly captured the widespread belief in the ominipotence of the then-chairman of the federal reserve. "If you want a simple model for predicting the unemployment rate in the United States over the next few years, here it is: it will be what [Alan] Greenspan wants it to be, plus or minus a random error reflecting the fact that he is not quite God."
Faith in the federal reserve is not what it used to be. Since september, the Fed has cut its policy rate by 1.75 percentage points, to 3.5%. It still has plenty of firepower left - rates are someway above the 1% level reach in 2003 - but few seem willing to rely on monetary policy alone to save the day. Politicians and pundits alike were making a case for a fiscal stimulus package even before the Fed's surprise rate cut on January 22, 2008. That Ben Bernanke, the Fed's chairman today, has given his blessing to the plan only adds to the impression that central banks have lost their grip.
