Fed Revises Down Growth Forecast, Chooses to Maintain Current Policies
Today, the Federal Reserve released the minutes of its June Federal Open Market Committee meeting. Noting strong economic headwinds, the FOMC revised down its forecasts for growth, inflation and employment. The FOMC essentially determined that conditions had deteriorated, but not enough to warrant any changes to the Fed’s behavior:
In their discussion of monetary policy for the period ahead, members agreed that it would be appropriate to maintain the target range of 0 to 1/4 percent for the federal funds rate. The economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside. Nonetheless, all saw the economic expansion as likely to be strong enough to continue raising resource utilization, albeit more slowly than they had previously anticipated. In addition, they saw inflation as likely to stabilize near recent low readings in coming quarters and then gradually rise toward more desirable levels. In sum, the changes to the outlook were viewed as relatively modest and as not warranting policy accommodation beyond that already in place.
This** **recognition of the troubles but hesitancy to do anything — from buying up corporate debt to raising the inflation target to dropping money from a helicopter — has a number of prominent economists perplexed. (See Brad DeLong and Paul Krugman.) There are a variety of reasons why; primary among them is the sense that the economy is not in a state of “emergency,” and therefore the Fed should stick to conventional policy-making instruments. But I would add one other important one: Congressional action would be far less unusual, and far more immediate, than what the Federal Reserve would do.