Unemployment is at a decade’s-long high, and despite the supposed economic recovery, job growth has been anemic at best.
The Fed’s core mission with respect to monetary policy is to “influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.”
Is the Fed achieving this goal? We remain at risk for a double-dip recession. Is the Fed fully utilizing all its tools to stimulate economic growth?
Tim Duy has been reading the tea leaves and concludes that, for the time being, the Fed is content to do nothing, letting the economy glide on its own power:
Bottom Line: The Fed shows no sense of urgency with respect to the current economic situation, and appears prepared to endure a weaker second half with no policy shift. Moreover, even if the economy does worsen more than they expect, the likely candidates for policy action are more smoke than fire. The Fed knows this, and doesn’t want to lose credibility on actions with little likelihood of success. A more aggressive policy stance Gagnon-style appears off the table as long as the Fed fears the possibility that such policy might actually work and push up long term rates. That means more significant action only after outright deflation expectations are evident. Appears extreme, but central bankers tend to be a conservative lot. Lacking a financial crisis, the need for more action is not apparent to them. They fundamentally believe they have done pretty much all that can be reasonably expected. Moreover, we need to reassess the Fed’s inflation comfort level; they may think they are hitting one mandate just fine.
The economy is sputtering and policymakers seemingly have no sense of urgency to do anything more about it. Evidently the Fed will not be changing monetary policy anytime soon. Congress apparently won’t be adopting any stimulative fiscal policy beyond extending unemployment benefits. The resulting outlook is for continued high unemployment for many more months, if not years.
It’s depressing.