JANUARY 26, 2011
The Fed's Magic Show Appears to Be Over
By KELLY EVANS
The Federal Reserve is at the end of its rope.
On Wednesday, the central bank probably will wrap up its latest meeting with a decision to do nothing. Fed officials may update their postmeeting statement from last time to acknowledge the U.S. economy's recent improvement and even may nod at rising inflation expectations. But they aren't likely to call off their $600 billion government-bond-buying campaign.
Nor are they expected to introduce any new measures, much to the relief of inflation hawks. But despite stock market bullishness, this is hardly a "mission accomplished" moment for the U.S. economy.
For all the Fed has done, it hasn't managed to spur job creation. U.S. output may be returning to prerecession levels, but the total number of nonfarm workers still is more than seven million shy of its December 2007 peak, and in fact is back at 1999 levels.
More broadly, the Fed's failure reflects a longstanding flaw in its approach. For years, it has been pushing interest rates lower, doing so after each successive downturn as inflation became less and less of a concern. But that wasn't simply due to successful monetary policy.
Technological innovation, the globalization of the work force and demographic change had plenty to do with it, too.
![[AOT]](http://si.wsj.net/public/resources/images/MI-BI035_AOT_NS_20110125183904.jpg)
Instead of being a cure-all, the Fed's policies spawned two great asset bubbles, first in stocks, then in real estate. Economic rebounds and job creation lagged behind, despite the Fed's Herculean efforts.
That is especially true today. Some say the Fed ought to double down, that policy makers actually have been too gun-shy. Yet the limits of monetary policy are becoming clearer. History suggests any further easing probably would do too much for the stock market and asset prices, and too little for jobs.
The only real fix is to lower the cost of U.S. workers relative to foreign rivals and machines, or else raise their bang for the buck. The latter, while clearly preferable, requires education and training that won't turn things around overnight. The Fed, meanwhile, has tried its hardest to generate separate, asset-based sources of income and spending. But that has bred backlash and complacency.
The Fed, in other words, is out of silver bullets.
On Wednesday, the central bank probably will wrap up its latest meeting with a decision to do nothing. Fed officials may update their postmeeting statement from last time to acknowledge the U.S. economy's recent improvement and even may nod at rising inflation expectations. But they aren't likely to call off their $600 billion government-bond-buying campaign.
Nor are they expected to introduce any new measures, much to the relief of inflation hawks. But despite stock market bullishness, this is hardly a "mission accomplished" moment for the U.S. economy.
For all the Fed has done, it hasn't managed to spur job creation. U.S. output may be returning to prerecession levels, but the total number of nonfarm workers still is more than seven million shy of its December 2007 peak, and in fact is back at 1999 levels.
More broadly, the Fed's failure reflects a longstanding flaw in its approach. For years, it has been pushing interest rates lower, doing so after each successive downturn as inflation became less and less of a concern. But that wasn't simply due to successful monetary policy.
Technological innovation, the globalization of the work force and demographic change had plenty to do with it, too.
That is especially true today. Some say the Fed ought to double down, that policy makers actually have been too gun-shy. Yet the limits of monetary policy are becoming clearer. History suggests any further easing probably would do too much for the stock market and asset prices, and too little for jobs.
The only real fix is to lower the cost of U.S. workers relative to foreign rivals and machines, or else raise their bang for the buck. The latter, while clearly preferable, requires education and training that won't turn things around overnight. The Fed, meanwhile, has tried its hardest to generate separate, asset-based sources of income and spending. But that has bred backlash and complacency.
The Fed, in other words, is out of silver bullets.
0 comments:
Publicar un comentario