The Fed States the Obvious, by Paul Krugman, in NY Times: OK, count me unimpressed by the Fed statement — although for some reason markets went wild.
The Fed didn’t announce a new policy. And despite what some press reports said, it didn’t even commit to keeping rates low; all it did was say that if the economy stays weak, rates will stay low — well, duh — and that it might think about doing other stuff one of these days:
The Committee 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 Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate.
And three members of the FOMC dissented even from that!
I guess if you really thought that the Plosser-Kocherlakota view that rates need to rise even in the face of low inflation and high unemployment because, well, they just should was going to prevail, this might have given you some comfort.
Meanwhile, long-term rates are now down close to the lows they hit during the worst days of the Oh-God-we’re-all-gonna-die period after Lehman’s fall.
Bear in mind that the austerity guys have been warning since early 2009 that rates were going to soar any day now, while those of us who understood our Keynes/Hicks model said that rates would stay low as long as the economy stayed depressed. That’s a pretty spectacular vindication of one point of view, rejection of another — which will, of course, not stop Very Serious People from listening mainly to those who got it completely wrong.