James Pethokoukis

Politics and policy from inside Washington

A pro-growth Fed?

July 8, 2010

Washington continues to twist itself into knots over what to do about the weak economy. Congress can’t bring itself to spend anymore taxpayer dough on “stimulus.” So now it’s the Fed’s turn, apparently (via the WaPo):

One pro-growth strategy would be to strengthen language in Fed policy statements that the central bank’s interest rate target is likely to remain “exceptionally low” for an “extended period.” … Another possibility would be to cut the interest rate paid to banks for extra money they keep on reserve at the Fed from 0.25 percent to zero. That would give banks slightly more incentive to lend money to customers rather than park it at the Fed … A third modest possibility would be to buy enough new mortgage securities to replace those on the Fed balance sheet that are paid off as people take advantage of low interest rates to refinance.

Me: If the Fed wants to ensure it gets a lot more scrutiny from Congress, engaging in quasi-fiscal policy will guarantee it. But please, no one consider tax cuts — the one thing that might boost the economy and get the GOP to vote for.

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