In general, if policymakers are going to take any steps to improve the economy this year, the efforts will have to originate in Congress or at the Fed. Congress, as is now clear, can’t act, because Republicans won’t let it.
And as of this afternoon, it’s equally clear the Fed could act, but doesn’t want to.
The Federal Reserve said Tuesday that it will hold short-term interest rates near zero through mid-2013 to support the faltering economy, but it announced no new measures to further reduce long-term interest rates or otherwise stimulate renewed growth. […]
Mr. Bernanke said last month that the Fed was “prepared to take further steps if needed,” but he made clear that the central bank was reluctant to do so.
Within 20 minutes of the Fed’s announcement, the Dow Jones, which had been up all day, lost 250 points.
And why is that? Because so many people desperately hoped the Federal Reserve would see the crumbling economy and take aggressive action. Instead, the Fed is content to stick with the status quo indefinitely.
The negligence is painful.
You can read the Fed’s press release and see the areas of concern. The board of governors believes “economic growth so far this year has been considerably slower than the Committee had expected,” sees a “deterioration in overall labor market conditions,” and perceives the housing sector as “depressed.” And yet, the Fed still doesn’t believe conditions are severe enough to warrant action.
Yes, it also said it might be inclined to move should things get much worse quickly, but how long the Fed intends to wait is unclear, and exactly how much suffering will be necessary is even less clear.