The FOMC had its meeting today, and here’s their latest rearrangement of the deck chairs on the Titanic:
To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.
The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.
The only mystery is when folks will finally realize that the wizards behind the economic curtain (to mix my metaphors) don’t have any power to affect in any sustainable way real economic outcomes, and never did. They are only able to create monetary illusions.
So far as illusory powers go, this action of trading short maturities for long is rather weak. And $400 billion in a $12-14 trillion-dollar economy is like a pebble thrown into one of the Great Lakes (
to churn out another metaphor to add a simile–I never was much good at identifying figures of speech).
All of which is good, if the goal is for economic activity to reach its natural level, which it will no matter what the Fed does, but will do so with less difficulty, if the Fed will just leave things alone.