There’s no reason yet for the Federal Reserve to accelerate unconventional measures to spur U.S. economic growth.
Indeed, to soon adopt what The Wall Street Journal today called a “modest but symbolically important change” in its quantitative easing might be counter-productive in that it spooks the market into thinking The Fed has lost all confidence in the recovery.
The correlated fear to that is to enlarge in investors’ minds the possibility of deflation.
And the maneuver itself, using money from maturing Fed-owned mortgage-backed securities to buy new securities, probably U.S. Treasurys, has no guarantee of making any measurable difference in the minimalist recovery under way.
Indeed, if the Fed winds up ‘pushing on a string’ with any sort of near-term additional quantitative easing measures, meaning they just won’t work because credit liquidity is not the problem, it could damage the Fed’s credibility.
The Journal’s Jon Hilsenrath reported today that Fed policymakers are considering the move, not that it has already been adopted. A debate about what if anything to do likely will be continued at the Fed’s regularly scheduled monetary policy meeting later this month.
It’s also a bad idea to ease further when there’s still some debate about how strong the economy is right now. Though he has political reasons to want a rosy view, Treasury Secretary Timothy Geithner today laid out the pluses of the recovery that can’t fully be dismissed.
“Business investment and consumption – the two keys to private demand – are gettings tronger, better than last year and better than last quarter,” Geithner wrote in an op-ed piece in today’s New York Times.
A more subtle argument also urges against further imminent action by the Fed. Call it fix-it fatigue. We’ve now lived through a couple of years of extraordinary actions by the government and central bank to end a credit crisis and cushion the impact of severe recession.
The great middle would agree that it was necessary, did some real good and kept things from being much worse. On the fiscal side, perhaps it even winds up costing the taxpayers a lot less than originally feared.
Still, that same middle group hasn’t given up on capitalism and realizes that too many short-cuts to avoid any economic downturn might well have helped get us into this mess.
That view argues that minimalist growth is all you can expect in the slow, painful process of deleveraging needed to clear the overextended decks for healthier, more sustainable economic growth.
In short, things need to be worse than they are for the Fed to decide it has to try anew to make things better.