The Fed Is Failing

Moneybox
A blog about business and economics.
Aug. 1 2012 2:22 PM

The Federal Reserve Doesn't Want the Economy To Grow Faster

Federal Reserve Board Chairman Ben Bernanke
Federal Reserve Board Chairman Ben Bernanke

Photograph by Alex Wong/Getty Images.

The Federal Reserve announced today that neither weak employment growth nor falling inflation will inspire it to loosen up monetary policy. Instead they're just going to adopt a random anchor and stick with the status quo unless disaster strikes.

Here's their description of the recent past:

Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.
Advertisement

Slow growth in employment should militate in favor of looser money. Declining inflation should militate in favor of looser money too. What about the forward-looking situation:

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.

Unemployment that is only declining slowly toward a level consistent with the dual mandate should militate in favor of looser money. Inflation that's at or below the optimal rate should militate in favor of looser money.

Naturally, the statement ends with the Fed saying there will be no change in policy.

Epic fail.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.