Yesterday, the Fed met, and in a move more important than the election for the future of our economy, decided to get serious about getting serious and buy $600 billion in long-term Treasury bonds in an effort to further stimulate the economy, recognizing that these steps are necessary for full employment. (Read Planet Money's translation of the Fed's Open Markets Committee statement.)
This is a good decision on the part of Chair Ben Bernanke -- who explains his thinking here -- but without fiscal support from Congress or larger purchases, the success of the initiative largely depends on whether it succeeds in raising inflation expectations and encourages cash-heavy companies to invest their money before it devalues. The lower rates engendered by the move should also help over-levered consumers and businesses repair their balance sheets, another obstacle to full recovery.
Many critics, even some on the left, argue that this is a bank-shot approach toward repairing the real economy. But they have yet to offer a feasible counter proposal, and in this economy -- unemployment claims are rising again -- action is far better than inaction. That's because if we allow stagnation to continue, the economy could simply adapt to its lowered capacity, making high unemployment the norm. That's just not acceptable.
-- Tim Fernholz
