The reluctant Fed

More from Neil Irwin on why the Fed doesn't want to do more to help the economy:

Fed leadership, however, views the bar as being higher for using such unconventional steps than it is for using the more deeply understood federal funds rate. In other words, it's hard to know exactly how much impact, if any, buying $500 billion of Treasury bonds would have on the economy. The effect is particularly unclear in an environment where long-term interest rates are already very low; it's not clear that 10-year Treasury bond rates, to which mortgage and other rates tend to be linked, could fall much below their current 2.63 percent level. The purchases could even be counterproductive, if they lead investors to believe that the Fed will continue printing money indefinitely to fund large U.S. budget deficit, driving up inflation expectations. While some uptick in inflation expectations would be desirable for the economy, the exact influence is unpredictable and expectations could get out of control quickly.

So the Fed won't do more mainly because it's hard to say whether doing more would really help? That seems odd. Maybe the Fed doesn't think it would help but believes that the economy is better off if people think the Fed can still help. It's better for the Fed to be thought reluctant than powerless.

As for the "risk" side of the equation, if inflation starts racing upward, the Fed could simply end the program that's sending inflation soaring. All in all, this reads more like justifying a preference for the Fed's status quo than an explanation of why a thorough review of the options left the Fed convinced that doing more would be worse than doing less.

I'm not a Fed expert. So I try to be deferential on monetary policy: I'm inclined to believe that if the Fed isn't doing something, it has a good reason to not do it. But the more time I spend tracking down the Fed's statements, the more it seems that either the Fed isn't articulating its best arguments or their arguments actually aren't very good.

Photo credit: By Alex Brandon/Associated Press