Tell NPR, the Fed Has Many More Bullets

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Wednesday, 22 June 2011 04:55

In its top of the hour news segment NPR told listeners that there is little else that the Fed can do to boost the economy. This is very seriously wrong.

The Fed could do more quantitative easing, it could target a long-term interest rate, for example targeting a 2.5 percent 10-year government bond rate, or it could target a higher inflation rate (e.g. 3-4 percent). All of these measures would some impact in boosting the economy.

The Fed is choosing not to go this route because its open market committee apparently feels the potential benefits do not outweigh the risks, however it is simply wrong to say that additional options to boost the economy do not exist. The Fed has simply opted not to take them.

NPR's mis-reporting on this point is important because the decisions of the open market committee are in part political ones. They respond to the larger debate within the country. If people do not even know that the Fed has options that could spur growth and reduce unemployment then they will be less likely to try to pressure the Fed to pursue such options.