It’s hard for me to keep a civil tongue when chief alchemist Ben Bernanke makes an announcement like this. He’s going to buy more government securities in order to lower the unemployment rate, but this won’t affect the inflation rate. If it does, he’ll stop.
For the first time, the Fed has announced a goal for the unemployment rate. By saying that it anticipates that it will keep interest rates extremely low until the unemployment rate falls to 6.5% (as long as inflation doesn’t get out of control), the Fed has become more aggressive about turning the economy around.
It bears repeating: he’s going to do more of what hasn’t worked in order to solve a problem which it helped create.
Makes sense to me.
Part of me rejoices that the internet has forced his hand to become more transparent. Part of me liked the olden days when Alan Greenspan was deliberately opaque and left us wondering what he was up to. Now we do know what the Fed chairman is up to, and we were better off not knowing.
The Keynesian apologists have managed to put a positive spin on the emperor’s nakedness: “Leading macroeconomists have been arguing that monetary policy can be more effective if the Fed gives precise numerical targets for unemployment and inflation. Clear communication actually makes the policy work better, they said. Today, the Fed agreed with those critics.”
Here are the words: price stability is now defined as 2% annual inflation (increases in prices as determined by the CPI, a government number provided by a government agency for government purposes with increasing less relevance to what’s happening in the real world, but never mind).
And he’ll continue the madness until unemployment drops to 6.5% or less (again using government numbers, etc., etc.).
Rex Nutting, the writer for MarketWatch, finally gets around to telling us what all this palaver means. It means nothing at all: “The bad news is that the Fed has already done almost everything it can to get the economy up to full speed. The new policy announced Wednesday will likely give the economy only a slight boost.”