This is from Alan Meltzer, the man who wrote it:
How can the Fed know now that a zero-rate policy will be required two years from now? It can’t. Yes, economic growth has slowed, and forecasts of future growth decline daily. But the United States does not have the kind of problems that printing more money will cure.
Banks currently hold more than $1.6 trillion of idle reserves at the Fed. Banks can use those idle reserves to create enormous amounts of money. Interest rates on federal funds remain near zero. Longer-term interest rates on Treasurys are at record lows. What reason can there be for adding more excess reserves?
The main effect would be a further devaluation of the dollar against competing currencies and gold, followed by a rise in the price of oil and other imports. Inflation is now at the edge of the Fed’s comfort range, which is below 2%. Money growth (M2) reached 10% for the past six months, presaging more inflation ahead.
According to him the problems are mainly “structural”!
Our problems will not be solved by stop-gaps like QE3 or lower labor taxes, but they are not intractable. What we need most is confidence in our future.
So tell us, please, Professor Meltzer, that the monetary policy “mishap” depicted in the following picture has no implications for the present “problems”!
And if monetary policy “dug the whole”, shouldn´t monetary policy (at least) help to “fill it up”?
Note: David Glasner has a detailed post contesting the view held by Metzler that the Fed “has no role to play”