Liveblogging World War II: October 15, 1940
Jo Walton Is Smart

Monetary Policy: Ryan Avent Is, I Think, Grasping at Straws

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Ryan Avent, I think, misreads Bernanke. Quantitative easing 2 will begin in November, but it will be tuned to be too small to do much to affect unemployment.


Monetary policy: Time to go to work: [Bernanke] then wraps up drily but tellingly:

In short, there are clearly many challenges in communicating and conducting monetary policy in a low-inflation environment, including the uncertainties associated with the use of nonconventional policy tools. Despite these challenges, the Federal Reserve remains committed to pursuing policies that promote our dual objectives of maximum employment and price stability. In particular, the FOMC is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation over time to levels consistent with our mandate. Of course, in considering possible further actions, the FOMC will take account of the potential costs and risks of nonconventional policies, and, as always, the Committee's actions are contingent on incoming information about the economic outlook and financial conditions.

Having said that inflation is too low and is likely to remain too low for some time and that unemployment is too high and is likely to remain too high for some time, Mr Bernanke says that the Fed is prepared to take action to prevent precisely that eventuality. And that's why most observers feel confident in predicting new easing come November. But questions still loom over precisely what the Fed will do.

Having said that the Federal Reserve will take action if the sky is blue, and having said that the sky is blue, Ben Bernanke then says that the Federal Reserve will take action "if needed," that it will return inflation to "levels consistent with our mandate," but will do so "over time."

Even if "levels consistent with our mandate" does mean an inflation rate a hair below 2%, that is not a declaration that the Federal Reserve is going to act now to accomplish that goal. It is a statement that the Federal Reserve will take steps to accomplish that goal "over time," and only "if needed"--thus stating that such steps are not now needed.

This is very bad.

This is a declaration that whatever quantitative easing program the Federal Reserve embarks on after the election will be designed to be too small to push the annual inflation rate back up to 2%.

Can I please return to my home timeline now?