Fed action warranted, but Congress should do more

The Federal Reserve’s decision last week to tie additional aid for the economy directly to jobs was a milestone for the central bank. It made an open-ended commitment to keep interest rates low for years if it has to. Financial markets loved it — which had the short-term benefit of pushing money into riskier investments. We think the Fed did the right thing.

But Congress should take other steps. We favor infrastructure spending, which creates jobs and improves the flow of commerce.

President Barack Obama last year proposed creation of an “infrastructure bank” as part of his jobs program. That idea, like the others in the Obama proposal, went nowhere as common sense wilted in the heat of acrimony, but it remains a good idea.

The Fed said Thursday it would buy up large quantities of mortgage bonds and emphasized it would maintain this economic stimulus “for a considerable time after the economic recovery strengthens.”

In other words: We’re going to intervene in the market until more jobs are created — and we’re going to keep doing it until we’re sure the economy is humming.

The Fed had to act. Jobs remain elusive. More than 20 million Americans cannot find full-time work, and incomes remain stagnant. “The weak job market should concern every American,” Fed Chairman Ben Bernanke said.

The Fed believes its actions up to now have helped create 2 million jobs. Its decision to focus on mortgage bonds in this round of aid shows it believes there is more bang for the buck in helping to improve the housing market. We’d agree.

Fed purchases of bonds boost competition for the remaining bonds, forcing investors to accept lower rates of return. That results in lower mortgages, which, the Fed reckons, will equal more housing starts — and a hotter economy. We think it’s a bet worth making.

On the fiscal side, we have no illusions that Congress will do anything meaningful in the next 50 days. But after the presidential election, we hope cooler heads will see that there is value in infrastructure spending.

The nation needs to do this. A Government Accountability Office report in 2010 found that about a quarter of the 600,000 bridges in the United States are “structurally deficient” or otherwise not up to the demands of traffic loads. Spending on highway projects, the electric grid, transit and other projects creates jobs and improves the flow of goods.

Obama’s infrastructure bank idea was stillborn after he mentioned it in his State of the Union address earlier this year mainly because it involved spending. Contrary to the tight-lipped gospel of austerity, we think spending on the right things is good. Roads, bridges, ports — that’s the kind of government spending that not only creates jobs in the short term but improves regional economies for years.

The infrastructure bank would work like this: The government would chip in about $10 billion in start-up money for projects in transportation, water or energy. The projects would have to have a “clear public benefit” and be worth at least $100 million. The government, through the bank, would work with private investors to finance the projects through long-term loans or loan guarantees. The government would pay for no more than half the cost and look for projects with a dedicated stream of revenue, such as toll roads or bridges, to pay off the bonds.

Mark Zandi, chief economist at Moody’s Analytics, testified last year before the Joint Economic Committee that lawmakers should “provide consistent support to public investment in transportation networks, the Internet backbone and the electric grid.” He said a national infrastructure bank “which could marry private capital with financial support from the government, would provide a substantial boost to this effort.”

The Fed’s move was warranted, but Congress should step up, too. Let’s rebuild the nation — and the economy at the same time.