September 05, 2011
Neil Irwin at the Post did some real reporting today. He talked to business executives and reviewed conference calls to determine if there was evidence that they were scaling back their expansion plans. Irwin found considerable nervousness, but little evidence that businesses planned to curtain investment and hiring. This supports the view that the economy’s near-term prospects are for a continuation of weak growth, but no double-dip. Of course the current growth rate is not rapid enough to even keep pace with the growth of the labor force, much less bring down the unemployment rate, so this is not exactly good news.
The piece does error in saying that the Fed is out of ammunition. The Fed could take more extreme measures such as targeting a 1.0 percent interest rate for 5-year Treasury bonds or even targeting a higher rate of inflation, as Bernanke had advocated for Japan back when he was still a professor at Princeton. There are serious political obstacles to the Fed adopting such policies, however it is wrong to imply that it does not have options that could provide a stronger boost the economy.
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