The Federal Reserve's massive easing program has been ineffective and represents a danger to the economy, says Nobel-laureate economist Edmund Phelps.

"The Federal Reserve did well to supply liquidity after Lehman Brothers failed in September 2008 and the world was plunged into financial crisis," he and Tufts University business professor Amar Bhide write in The Wall Street Journal.

"But since then the Fed's monetary policy has been increasingly hazardous."

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

The central bank would do well to simply focus on controlling inflation, the duo says. "That would leave businesses and other players to determine the pace of recovery from a recession or of pullback from a boom."

Instead the Fed embarked on quantitative easing (QE) to support the economic recovery. The idea, as Fed Chairman Ben Bernanke put it, was to push stock prices higher, which in turn would lift consumer confidence, wealth and spending.

"It is doubtful, though, that quantitative easing boosted either wealth or confidence," state Bhide and Phelps, who is now at Columbia University.

Fed easing hasn't aided small businesses either. It "has helped large companies already flush with cash issue bonds at low rates, while small businesses have struggled to secure working-capital loans," they explain.

"Congress passed the Federal Reserve Act in 1913 mainly to forestall and contain panics, discourage speculation and improve the supervision of banks, not to steer the economy," the pair writes.

"It is not desirable that seven people on the Federal Open Market Committee have the power to intervene on a massive scale based on theories that may or may not be right and do not reflect a popular consensus," Bhide and Phelps stress.

"Restoring the modest foundational aims and diffused governance of the Fed would be good for our economy and good for our democracy."

Meanwhile, Bernanke said Wednesday that the course of the Fed's QE tapering depends on the economy's performance. The Fed can speed up or delay tapering as necessary, he told Congress.

Stock and bond markets dropped in May and June after Bernanke said the Fed may taper this year. "Clearly what happened in the markets after June was well beyond what they intended, and they're trying to pull it back," Julia Coronado, chief North America economist for BNP Paribas, tells Bloomberg.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown