FOMC Adopts Game-Changing Conditional Inflation Targeting Rule

[Recursion]

Source: Slate Moneybox

This is huge. With today's policy announcement, the Federal Reserve's Open Market Committee has stopped screwing around and started doing real expectations-based monetary easing.

The new policy is a version of the plan from Charles Evans that I wrote about in March. They've said that interest rates will remain low until unemployment falls below 6.5 percent or the inflation rate exceeds 2.5 percent. That is a softer and weaker form of monetary easing than Evans originally proposed, but apparently a meager inflation target is the price you have to pay politically to get this done. As I explained yesterday, this kind of strategy should be partially successful in getting corporate cash off the sidelines in a way that "certainty" and "confidence" won't. The higher inflation target makes cash-like safe liquid investments look slightly less reasonable than they did yesterday, while the faster real growth implied by the unemployment target makes real investments in increased capacity look better.

Read more: http://www.slate.com/blogs/moneybox/2012/12/12/fomc_adopts_game_changing_conditional_inflation_targeting_rule.html

[randome]

1. I'm no economist but that sounds interesting.

JP Morgan says we may be in for a boom cycle if the assholes in Congress avoid pushing us off the cliff. This sounds like a plan that would make that possibility clearer.

[JDPriestly]

6. I agree with JP Morgan (for what it is worth).

I think the economy is growing faster than people realize just based on the numbers.

I got out and campaigned for Obama in my lower middle class area. People seemed a lot, lot, lot more optimistic than they were just two years ago.

Obama's re-election strengthened the more positive feeling that people have.

We have at least, in my opinion, overcome a lot of the depressed, fearful sense that people had during the Bush administration (especially the final year of it) and thereafter. I sure hope I am right. When I went Christmas shopping yesterday (at an inexpensive store), my ideas were confirmed. Even lower income people are feeling more confident.

[unblock]

2. cool! now if we can only get tax policy on a comparable formula

e.g., top tax rate goes up 3 percentage points for every 1% of gdp.

[Lionessa]

3. Or conversely sways with the unemployment figures, that'll assure they

invest here if they want low tax rates.

[unblock]

4. good idea. just about any formula would be better than "status quo"

the economy is always changing, so having a fiscal policy that constantly requires congress to change it to keep up is not, let's say, well-engineered.

[randome]

5. Well said.