The Fed’s meetings this week resulted in another round of tapering, which was an expected, if unnecessary and counterproductive, move. This month, the government will buy $65 billion worth of bonds, as opposed to the $75 billion it bought in the previous month. Prior to that, it had been buying $85 billion worth of bonds per month as part of the “Quantitative Easing” program that most economists believe to have had a positive effect on growth and the unemployment rate.
Importantly, it has not yet had much effect on inflation, which remains historically low and is the key worry when the fed is increasing the money supply. At the same time, unemployment remains stubbornly high, with the most persistent gains coming from workers dropping out of the workforce.
However, “In an official statement, the Fed sounded more upbeat about the economy, noting the data since it last met in December “indicates that growth in economic activity picked up in recent quarters.” As we discussed earlier, 95% of that “growth in economic activity” has been going to the top 1% since the financial crisis- the average American has not felt the affects and they need MORE growth.
Instead, the Fed is taking the cautious course simply for caution’s sake. One can only hope that new Chairwoman Janet Yellen will steer the Reserve Board in a much more dovish direction than this, but seeing as she was the number two in the organization up until her ascension this week, that seems unlikely.
On the bright side, though, Yellen does seem sympathetic to keeping interest rates near all time lows, as they have been since the financial crisis. This could be the more important driver for the recovery, as it has been more of a traditional measure that the federal reserve uses to slow down or speed up the economy as it sees fit. Quantitative Easing had not been tried before when it was introduced by outgoing Fed Chairman Ben Bernanke, who was nominated by President George W. Bush.