09.22.11

Quick thoughts on yesterday’s Fed action

Posted in Economics, Politics and Policy at 6:45 am

The Fed is clearly aiming to do the minimum amount it thinks necessary in an effort to extend the effectiveness of its available tools.  The other components of the expected action – a cut in the interest rate on excess reserves and a commitment to maintain the size of its balance sheet for an extended period are coming, just not yet.  So are additional asset purchases.  This is a mistake, and is reminiscent of Fed policy in 2007 – a quarter point cut here a half point cut there, until they woke up to the severity of what was happening around them.

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