Wednesday, December 12, 2012

Last Call

Gentlemen!  Quickly!  To the Bernanke National Heliport!

The Federal Reserve took a genuinely unexpected step Wednesday afternoon when it announced it would significantly enhance its current monetary easing program. The Fed, for the first time, committed to keeping monetary policy loose until the economy crosses precise thresholds — specifically, an unemployment rate below 6.5 percent or a inflation above 2.5 percent.

It also upped its monthly asset purchases by spending an additional $45 billion a month on Treasuries.

Only one member of the Fed Open Market Committee dissented. The significantly more aggressive policy is designed to provide businesses greater incentive to invest, and comes, perhaps not coincidentally, as Congress nears a deadline past which taxes will increase and spending will be cut to the tune of about $50 billion a month.

That $45 billion in treasuries is on top of the $40 billion per month in mortgage-backed securities announced in September.

In other words, the Fed is moving to counteract the fiscal slope before it happens, which means we should probably stop panicking about it in general, and that Republicans have even less leverage now.

Things are looking up.

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