Whatever dude. The Fed usually tries to appear to be above politics. So is this saying that without this, the economy would have collapsed in the next 2 months?[SUP]1[/SUP] Are we that close to the edge?
If so, that seems to say a lot for the failure of the Fed's previous actions and call for a different course of action, not more of the same[SUP]2[/SUP]. And if we aren't that close to the edge, then this absolutely reeks of political influence and game-playing.[SUP]3[/SUP]
1. Not at all. It's saying that without this action, we'd continue our same dull, precarious, mediocre recovery that barely adds enough jobs to keep the prime working age employment-population ration stable that we've been in since 2010 or so. The Fed has seen low inflation and high unemployment, and has judged that open-ended easing is the best course of action consistent with its mandate to maintain stable prices and maximum employment.
2. This is indeed a change in the Fed's course of action. They haven't done open-ended easing before and much of the communication and transparency that Bernanke has started is very new. The Fed
only had its first press conference in 2011, 98 years after the Federal Reserve Act.
"The policy the Fed announced today is unusual in that it is an open-ended purchase of securities. The Fed did not announce a total dollar value as it has in the past, but instead committed to continue buying assets until economic conditions change, i.e. until unemployment falls "substantially," or inflation begins to increase to worrisome levels. The extension of the forward guidance on interest rates from 2014 to 2015 is also unusual, but both of these can also be explained by the recent conference in Jackson Hole. At that conference, Michael Woodford, a very highly respected monetary economist, delivered a paper showing that the Fed has the most impact on the economy when it credibly commits to future actions. Thus, according to Woodford, it is not the quantitative easing itself that helps the economy (i.e. how many assets the Fed holds), but rather it's the commitment to continue purchasing assets until the unemployment rate improves substantially that matters. This is a form of forward guidance, and it complements the forward guidance on interest rates the Fed has issued in the past, and extended today."
http://www.cbsnews.com/8301-505123_162-57512387/fed-announces-additional-monetary-stimulus/
This is definitely new, and there have definitely been people criticizing the Fed's (in)action recently. This very thread is but one example of that.
3. Conservatives and hard-money advocates can gnash their teeth all they want, but this action passed on an 11-1 vote and Bernanke is a Republican. This action is nothing more than public servants finally getting around to doing their jobs. If anything, this is overdue. If you want to talk about political motivations, talk about that.
