I’ve found a lot of the recent discussion about the Fed to be, frankly, confused. So I thought it worth trying to put the issues into a broader context.
Read the Fed’s latest statement, and you’ll see many of the themes I’ve talked about recently. They’ve learned that the economy is not only weak, but that—as I’ve been forecasting for some time—“economic growth so far this year has been considerably slower than the Committee had expected.” Turn to the labor market, and they somewhat dryly note “a deterioration in overall labor market conditions.” And while they won’t use the word double dip, they do note that “downside risks to the economic outlook have increased.” Also, “inflation has moderated.” So there’s plenty of room for them to try to goose the economy. But how?