While it’s true that the Federal Reserve didn’t say it in so many words, that’s only because it’s not capable of saying anything at all in only so many words. Perhaps that’s due to Greenspan’s Oracle heritage. Still, between the lines the Fed did say it: it has given up on an imminent recovery of the American economy, and most of all, it has given up on the American people. (Caveat: to give up on something one must at one time have cared for it to begin with.)
The Fed’s recent and persistent rosy predictions of a 4% or so economic growth for the US have become ridiculously untenable, and Bernanke et al wish that to be known. That can only mean one thing: they see a lot more trouble on the horizon, and wish to cover their behinds and reputations. In true Oracle fashion, the wording itself has changed from “moderate” growth in June to “more modest than anticipated” yesterday. Here’s thinking that Bernanke’s definition of “exceptionally low rates for an extended period” doesn’t apply only to interest rates, it’s equally valid for economic growth.
For many pundits, the only conclusion that can be drawn from this is that the Fed will “ease” more, and is preparing to use its “vast range” of monetary tools to fight the depression everyone still prefers to call a recession. But, assuming for a moment that the Fed has any intention of doing so, what then are these tools? Note that even as the wording of the expectations has gone sharply downward, all the board has said is that it will replace some $20 billion per month in maturing agency and mortgage backed securities with Treasuries, so it will not hold less than $2.05 trillion in such paper.
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