MacroScope

The Fed’s sour spot

November 23, 2011

Minutes of the Federal Reserve’s November meeting were notable for showing lengthy discussion — about the way the Fed could talk more clearly. The Fed took no action on either monetary policy or its communications strategy.

Call it the Fed’s sour spot. The recovery, while weak, is showing just enough sign of life to make the need for more monetary accommodation questionable. But by the Fed’s own admission, the job market won’t reach full employment until beyond 2014. In those circumstances, and with fiscal channels blocked, many will continue to look to Fed as the only possible source of stimulus.

Add to that clear signs of policy fatigue. Fed options are clearer communications or more bond buying. With mortgage rates already very low and house prices still falling, it’s clear monetary policy is struggling to translate into stronger growth. As Dallas Fed President Richard Fisher tells audiences after laying out grim scenarios: Have a nice day.

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