The financial media is a-buzz over the Federal Open Market Committees decision yesterday to buy over a trillion dollars in assets. Here is an example.
Let me parse the text of the FOMC’s press release.
Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.
The facts point to a continuing decline in the economy. On the other hand, the Committee anticipates that the decisions of the Committee will slowly restore the economy. This is reassuring. Think of what the Committee would have had to say if the Committee believed that it was the decisions of the Committee, 2000 to 2007, that got us into this mess.
In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued.
Subdued. I like that. It conveys an image of a guy in a straight-jacket who is on Valium.
Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
Here it is, folks: inflation fosters economic growth. We just don’t have enough inflation. The Committee will remedy that!
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.