Running out of options, Fed prepares to jolt economy Much of the media's attention is focused on Election Day. But another event Tuesday could have a far greater effect on the one overriding issue that looks likely to lead to major Republican gains. The Federal Reserve, at a meeting of policymakers Tuesday and Wednesday, is poised to take dramatic steps to jolt the economy awake. With Ben Bernanke and Company running out of conventional tools to address the slump, the moment is one of the most crucial since the downturn began nearly three years ago. The Fed has already pumped money into the economy by buying over $1.7 trillion worth of Treasury bonds, but this week it's expected to announce an additional $500 billion purchase, and may indicate a willingness to buy more. Some analysts see pitfalls to the move. "The greatest risk for the Fed in taking this action is that it could extend the economy's funk by giving a sense that either no one is in charge or that the people who are in charge can't get it right," David Shulman of the UCLA Anderson Forecast told the Washington Post. "The whole psychology of that could leak back into the economy." And if the Fed overshoots, it could produce the same kind of bubbles that helped get us in the fix we're in now. But the downsides of not acting may be greater. Unemployment is currently stuck around 9 percent, and the economy isn't growing fast enough to raise it. Meanwhile, inflation, at around 1 percent, isn't high enough to encourage consumers to spend money. In fact, some think the Fed isn't thinking big enough. Larry Meyer, a former Fed governor now with Macroeconomic Advisers, recently argued it will take more than $5 trillion worth of bond purchases to jolt the economy. Fed leaders have said that's too risky. But it's not clear what options they'd have if this week's expected action fails to stimulate sufficient growth and bring down the jobless rate. Some analysts, including Daniel Gross of Yahoo! Finance, argue that monetary policy can only do so much. They say that the nearly trillion-dollar stimulus measure passed last year wasn't enough, and that Congress and the Obama administration should act again with additional spending. With Republicans poised to make gains Tuesday after a campaign that stressed the need to cut spending, that looks unlikely. (Photo of Bernanke: AP/Dennis Cook)
Hoenig's dissention in September's FOMC implies that the FED talks bigger QE (over a longer term) while maintaining an incremental approach that give flexibility.
We will see a revolution when this whole damn thing blows up in everyones face. I just hope the hunger and bloodshed aren't too intense.
I think people are slowly starting to realize where this whole thing is headed and there will be no quick way out. The FED should just send everyone $10000 checks so we can all go back to buying Chinese made crap.
They will not get it back, but if they do it the way they are doing it, they will get back more than 20K. The FED is right.
How sure are you? The probs of a dollar heading higher seems to be much higher than a dollar heading lower. Did you consider the possibility that you be left holding the bag?
After the elections, which means as I write this, the Fed is the only option on the table. Let's go down the line: 1 - The ECB: it will release money when and only when it is forced into it. As spreads have been blowing out again between PIIGS debt and German bunds, this may happen sooner rather than later. Either way, they will, as always, be a day late and a euro short, as they have been since July 2008, when Trichet was, I sh*t you not, still raising rates. He and the rest of the ECB board should have been fired as of Sept 2008, when it became obvious what idiots they in fact are. Unfortunately, they're still there. 2 - The BOE: stuck, due to circumstances beyond their control. Anyway, they're too small to, by themselves, affect things. 3 - The BOJ: somewhat larger influence, even at this late date. But they're constrained by international politics: the US doesn't actually understand that their actions might actually help rather than hurt the larger cause. This is because the West even now doesn't really quite get that China is the problem. 4 - The PBOC: began tightening just a couple of weeks ago, and will continue to incrementally tighten. This is madness in the face of a world still facing a massive deleveraging on the part of non-government entities, but they think they have to fight the Fed. The real problem is lack of freedom: if workers were truly able to organize and fight for higher wages and better benefits, and do so through the political process as well, China's consumption would be rising as I write this, and the rebalancing everyone knows has to happen would happen naturally as a matter of course. But China has economic development without freedom, so of course this is impossible. So, with consumers deleveraging, banks unable and/or unwilling to lend, VC's pulling back or just treading water, while "private equity", an economically sterile pursuit, garners the headlines and the bucks, and the world's other central banks either misled or stuck by circumstance, and the USG constrained by the politics of witchcraft and pitchforks, the only option left is the Fed, run by old-fashioned Republicans, the kind who can read and write and add 2 and 2 and actually get an answer of 4. They're in a vanishingly small minority within their own party, and they won't be around much longer, so we might as well use them while we still have them. A decade or two from now, they'll be a mere memory.