Federal Reserve Bank takes note of a change in conditions


Neil Irwin reports in the Washington Post:

Top Fed officials still say that the economic recovery is likely to continue into next year and that the policy moves being discussed are not imminent. But weak economic reports, the debt crisis in Europe and faltering financial markets have led them to conclude that the risks of the recovery losing steam have increased. After months of focusing on how to exit from extreme efforts to support the economy, they are looking at tools that might strengthen growth.

"If the economic situation changes, policy should react," James Bullard, president of the Federal Reserve Bank of St. Louis, said in an interview Wednesday. "You shouldn't sit on your hands. . . .  I think there's plenty more we could do if we had to."

Perhaps they also saw how the hearltess bastards in the Republican party blocked the extension of unemployment insurance and thereby 1) increased the hardship of many American families, 2) jeopardized a weak recovery 3) exacerbated the government's long-term debt problems. 

Kevin Drum reacts.

Yglesias comments.


Dean Baker patiently explains how the Washington Post is confused.

"When the Fed was buying $300 billion in Treasurys in mid-2009, part of its try-everything approach to dealing with the crisis, rates on 10-year bonds temporarily spiked amid concerns that the Fed was "monetizing the debt," or printing money to fund budget deficits. With deficit concerns having deepened in the past year, such fears could be even more pronounced now."

The markets don't tell anyone why they moved in a certain direction at a specific time. It is not clear what spike the article is referring to, but the cause of the spike is entirely the interpretation of the Post and should clearly be identified that way. The Post does not really know what caused interest rates to rise, it is presenting its speculation to readers as a fact that is then used to support the case for a more cautious monetary policy.