The NYT made a remarkable assertion in its discussion of Federal Reserve Board Chair Ben Bernanke's speech at Jackson Hole today. It told readers:

"The most dramatic option available to the central bank would be an announcement that it intends to increase the total size of the portfolio. This is what markets refer to as “QE3,” meaning that it would represent a third round of the strategy known as quantitative easing."

Let's try about 2000 "NO"s for that one. The Fed could target a long-term interest rate. For example, it could announce that it was going to push the interest rate on 5-year Treasury bonds to 1.0 percent. It could target a higher inflation rate, for example 3-4 percent as has been advocated by people like Ben Bernanke before he was Fed chair. And it could buy assets other than government bonds, like the bonds of private corporations.

All of these steps would have a much more dramatic impact than "an announcement that it intends to increase the total size of the portfolio." It is incredible that the NYT reporters/editors on the Fed beat are apparently unfamilair with such proposals since they have been mentioned frequently by economists involved in monetary policy debates for years.


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