This Week May 18-22

Future Clues In the Fed's Look Backward

Bernanke's Fed may offer some insight into quantitative easing.
Bernanke's Fed may offer some insight into quantitative easing. (Susan Walsh - AP)
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By Neil Irwin
Washington Post Staff Writer
Monday, May 18, 2009

Compared with some of its recent moves, the Federal Reserve's late April policymaking meeting was a snoozer. No interest rate cuts. (How could they, when rates are already basically at zero?) No new emergency lending programs announced. (They already have more than a dozen, which apparently is enough for now.) Not even an expansion of its previously announced purchases of government bonds.

But the release Wednesday of minutes from that meeting will be interesting nonetheless, as the document could shed important light on where Fed policymaking goes from here.

Having pulled out every tool at its disposal to combat the recession and financial crisis, there is an open question about what kind of appetite Fed leaders might have for further action. On one hand, the economy is now declining at a more measured rate than it was this winter. On the other, the economy remains in decline.

The most obvious way the Fed could escalate its response would be to expand or speed up its planned purchase of $300 billion in long-term Treasury bonds. That step would help reduce long-term interest rates for the U.S. government and, if it works as intended, businesses and consumers. Long-term Treasury rates have risen in recent weeks, reflecting in part the improved economic outlook.

But the Fed purchases, a strategy known as quantitative easing, are controversial inside the central bank and out. Some officials worry that it could make it appear as though the Fed is printing money to support the government's giant budget deficits. Others are just skeptical that it will work. The minutes could offer some insight into the agency's latest thinking on how the purchases are being viewed, and hence, whether we might see more in the future.

Overall, it is a quiet week for economic data. The highlight is likely to be Tuesday's announcement of April housing starts.

NEIL IRWIN'S MUST-READS: How one economics reporter got caught in the mortgage crisis, and an interactive tool to track the Fed's balance sheet. For more, go to

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