Matthew Yglesias has a good run-down of all the things the Fed is doing to support the economy, from creating new lending facilities to expanding the assets it will purchase as part of its quantitative easing. As Yglesias points out, what the Fed hasn’t done is change its basic policy of seeking 2 percent annual inflation. There are alternatives, such as making the target an average. If we have a deflation during the next few months, for example, the Fed could commit to having above-2-percent inflation afterward.


Let’s leave aside whether this kind of policy should be adopted and say only that many people (including me) have argued that it would be helpful, especially during slumps. Some monetary economists, most insistently Scott Sumner, have even argued that this kind of “monetary regime change” would be more helpful than increased QE and reductions in interest rates. It would in one sense take less effort from the Fed: It would have to say new things, rather than buy new things. But it would be a change in kind rather than a change in degree — the Fed would be doing something conceptually different, not just doing more of what it has been doing — and so, for now at least, the Fed is refraining.