What The Fed Said

Drum translates yesterday’s Fed decision to continue monetary stimulus:

The bottom line is simple: If Republicans really want to see monetary policy get back to normal, they need to stop sabotaging the economy with spending cuts and debt ceiling debacles. If they do that, the recovery will strengthen and the Fed will no longer be forced to sustain loose monetary policy as a way of offsetting stupid fiscal policy.

Soltas weighs in:

Here’s the most important thing anybody can tell you about the taper: It’s not the taper that matters, but the signal the taper sends. By the same logic, the Federal Reserve’s decision today to delay the taper matters little on its own. What counts for everything is the signal: This Fed is committed to restoring vigorous economic growth.

Wolfers argues that the “whole taper debate is one that should never have happened” and that it’s “the result of a failed communication strategy”:

Think back to the June press conference, and you’ll recall Chairman Bernanke signaled that the Fed was thinking about tapering quantitative easing. Taper-talk came to dominate the financial headlines, and a monetary meme was quickly born. The result — as I pointed out at the time–was that markets over-reacted, interpreting the Fed as being less committed to easy monetary policy in the longer run. Long-term interest rates rose, mortgage rates rose, financial conditions tightened. All of this was the result of a needless miscommunication.

Salmon was impressed by the market’s reaction:

If QE does no good, then you might as well not do it. But the lesson we learned on Thursday is that the markets really, really love QE. And insofar as robust markets feed through into a healthier economy, the logical conclusion is that we should retain current policy well into 2014. The downside is limited — and the upside is much bigger than we thought it was.

Barro’s bottom line:

The story of the last five years continues: Fiscal policymakers screw everything up, and the monetary policy authority is the only thing that works. For a guy who’s basically been singlehandedly been keeping the U.S. out of recession, people sure give Ben Bernanke a lot of crap.