Meet the new Fed policy, (mostly the) same as the old Fed policy

Posted by Ezra Klein at 02:48 PM ET, 08/09/2011

The last three weeks have included another bad jobs report, a GDP-revision showing we’re in a much deeper hole than we realized and a global market panic. Today, the Federal Reserve’s Open Market Committee explained what it’s going to do with all this new information. The answer? Not much:

To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The only news there is that the Federal Reserve is saying that interest rates will remain low until at least mid-2013. But that’s pretty weak tea. Here’s what they should have done.

Ezra Klein

Ezra Klein is the editor of Wonkblog and a columnist at the Washington Post, as well as a contributor to MSNBC and Bloomberg. His work focuses on domestic and economic policymaking, as well as the political system that’s constantly screwing it up. He really likes graphs, and is on Twitter, Google+ and Facebook. E-mail him here.

Neil Irwin

Neil Irwin is a Washington Post columnist and the economics editor of Wonkblog. Each weekday morning his Econ Agenda column reports and explains the latest trends in economics, finance, and the policies that shape both. He is the author of “The Alchemists: Three Central Bankers and a World on Fire.” Follow him on Twitter here. Email him here.

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