...what we actually got was action that was pretty obviously calculated to be the absolute least the Fed could do without generating headlines saying “Fed ignores weak economy”.
I’m sorry, but this looks like pure concession to political intimidation — a Fed refusing to do anything that would let Republicans accuse it of helping Obama.
The increasingly repeated assumption in the aftermath of this past Friday's jobs report seems to be that this is what was needed to push the Federal Reserve over the edge for another round of monetary policy-induced stimulus.
On the one hand, the thinking behind the assumption seems unassailable: With Congress unable or unwilling to use fiscal policy to give the economy a boost and businesses and consumers mostly continuing to stay on the sidelines, the Fed is the only game in town.
But, on the other hand, the Fed has been repeatedly warned by congressional Republicans over the past year not to stick to its economic knitting by focusing just on inflation and not to do anything to boost GDP. As I've posted before, having eliminated any chance that fiscal policy will be used as a tool to enhance the recovery and boost Barack Obama's reelection chances, the GOP is trying to make sure that the only other tool available to do that -- monetary policy -- also isn't available.
The headline above is not what GOP congressional leaders actually said today to Federal Reserve Board Chairman Ben Bernanke, but they might just as well have used that precise language in the letter CNBC reports they sent to the Fed. According to CNBC, the letter instructed the Fed "to refrain from further 'intervention' in the economy.
In other words, now that the GOP has made it all but impossible for fiscal policy to be used to improve they economy, they want to make sure that the only other tool the government has at its disposal -- monetary policy -- isn't used either.
Why take on the Fed? The Republicans have some direct control over fiscal policy because they can either refuse to consider a proposal in the House where they are in the majority or can filibuster legislation in the Senate where they are in the minority. Because the Fed is an independent agency, the GOP can only do what they did today in the letter by threatening to bring down the wrath of god if it dares take any action to get the economy moving.
No, it's not the ocean liner. It's the Fed's second massive asset purchase, this time $600 billion of longer term Treasury bonds ($75 billion per month over the next eight months), just announced this afternoon. QE2 stands for "quantitative easing 2." QE1 was the Fed's somewhat forced purchase of $1.75 trillion of mortgage-backed securities during the depths of the financial crisis. Dropping interest rates to zero wasn't enough to avert the complete seizure of the lifeblood of the economy, its financial system, so the Fed put a lot of dollars in the hands of those financial institutions holding impaired housing assets. This Fed study found that it worked. Now that the economy is growing too slowly to lower the unemployment rate, and inflation remains low, the Fed decided today that QE2 was necessary to get more growth.