The Fed Speaks

by Pejman Yousefzadeh on August 9, 2011

It informs us that its economic outlook is less optimistic than it was in the past, and that there will be no QE3. On the upside, the Fed took the extraordinary step of telling the public that interest rates would remain low until “mid-2013″ in order to give the market sufficient confidence that borrowing costs will remain low–thus encouraging borrowing, consumption, investment, and the economic growth that comes from it. The stock market sure liked that statement; going up over 400 points today. But the presence of three dissenters on the Fed board makes clear that despite the fact that excessive inflation is not, and will not be a threat in the near term, there is enough concern about inflation to ensure that unless economic conditions get a lot worse, the Fed will do nothing to stimulate economic growth.

Again, it is worth stating that given the unique nature of the recent recession–which was caused by a financial crisis–and the excruciatingly slow growth we are experiencing in the aftermath, we likely need more inflation to help decrease the debt that is keeping the economy from growing more. But it looks like strategic inflation is not in the cards, which means that we are likely in for more economic pain than we should have to bear.

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