The Fed said in its official statement Wednesday that it was prepared to take additional action if the job market doesn’t improve. Mr. Bernanke repeated that sentiment over and over again at his press conference. Given how he has behaved in the past, one has to believe he really means it. If he develops more conviction that the recovery is under serious threat, bold follow-up action now looks like a real possibility. And if the recovery miraculously improves, he has lost nothing.
Not only things have NOT been improving, they have been deteriorating. Take a look at the Fed´s real growth forecasts for this year starting in January 2010.
Then take a look at a market based measure of short and long run inflation expectations from the Cleveland Fed over the same period.
Reminds me of the movie, only here it´s “Honey, I´ve shrunk growth and inflation expectations”!
Combining the Fed growth forecast and the Cleveland Fed inflation forecast, the NGDP forecast has declined from 6% to 3% over the last two years. The amazing thing is the RGDP/inflation split is still 2/3 in favor of RGDP! Massive policy FAIL!
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