FOMC: Dull by design?

August 12, 2009

The FOMC is determined not to make waves, either in the markets or in Congress. Today’s decision looks to be a compromise between these two goals. Lawmakers such as Jim DeMint are yearning for an end to the credit easing policies. But going cold turkey might unsettle the Treasury market. Allowing the program to taper off gently is a good middle ground. With the Fed’s regulatory role hanging in the balance in Congress over the coming months, this is no time to attract adverse attention.

Even so, I think it’s a shame that the Fed didn’t follow the Bank of England’s lead in extending asset purchases. If the Fed is so confident that it can quickly suck back any liquidity then why not try to make sure the recovery gets off to a stronger start?

The economic revival will soon start to look quite statistically impressive, with growth rates of up to 3 percent. Beneath this there will be climbing unemployment and surging foreclosures. The Fed itself is forecasting tepid growth and mounting joblessness. They could still help ease this pain by striving to shave more off the cost of borrowing for consumers and businesses.

They have done a great job at helping save America from depression. But this is a limp end to a historic policy.


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