Binyamin Appelbaum writes at the NYT:
At the meeting of the Fed’s policy-making committee last week, none of the 12 voting members supported stronger action to increase inflation or growth. One member voted in opposition to continuing the existing efforts.
“They are doing $85 billion a month in purchases. Well, there’s a number that’s twice as large as 85 and twice as large as that,” said Professor Wolfers. “It’s clear that they can do more. But they keep saying one thing and doing another.”
That reluctance ultimately reflects the enduring conviction of many Fed officials that their most important responsibility is maintaining stable inflation in the long run.
What the evidence shows is that their most important responsibility is maintaining NOMINAL SPENDING STABILITY!
Note that during the Great Moderation, despite sizeable shocks to prices, nominal spending stability kept sticky price inflation and real growth stable.
But James Stock, the just appointed CEA member will have none of that. To him:
The results of this exercise are mixed, in large part because the instruments produce estimates of purportedly different shocks that are correlated. In particular, the uncertainty shocks and the shocks to liquidity and financial risk are highly correlated, which makes their separate interpretation problematic. Despite these drawbacks, the structural analysis is consistent with the recession being caused by initial oil price shocks followed by large financial and uncertainty shocks.
Third, focusing on the recovery following the 2009Q2 trough, we estimate that slightly less than half of the difference between the recovery in employment since 2009Q2 and the average for recoveries between 1960 and 1982 is attributable to cyclical factors (the shocks, or factors, during the recession). Instead, most of the slowness of the recovery is attributable to a long-term slowdown in trend employment growth.
People, relax, it´s no one´s fault, especially not the Fed´s. Paraphrasing James Tobin´s 1971 “Living with Inflation”, we now have to “learn to live with low growth and employment opportunities”! But rejoice, there will be no inflation either!
What a waste!