Earlier today, I was surprised that people were surprised that reality TV was staged. This is different. Then it was surprising that people didn’t already know what was obvious. This time, it is surprising that we have had our expectations lowered so much that we are surprised when the Federal Reserve does something that is marginally good. This morning, the Fed announced that they were going to keep interest rates low until certain well defined economic conditions are met. This is good news. But not that good.
The Fed says that it will not raise interest rates until unemployment gets below 6.5%. This is the first half of the problem. An unemployment rate of 6.5% is nowhere near full employment. To have full employment, we would have to get to a rate less than 5%—perhaps quite a bit less. This has long been the recommendation of Robert Reich. So the Fed is still carrying the water of the rentier class. All they’re saying they will end their policy of not caring at all about unemployment and start caring a little.
But it is worse than this. The big problem with the Fed is its inflation target. When Reagan was president, the inflation target was 4%; now it is 2%. This is just ridiculous. The reason our economy is depressed is that the middle classes are in debt (or at least feel that way) and so aren’t spending money. The easiest way to get an economy out of debt is to allow a little inflation. By effectively keeping inflation at zero, the Fed is giving debtors almost no help in paying off their loans. As I said, this is all about keep the wealthy as rich as possible.
Now the Fed says that if unemployment stays high, they may even be willing to allow inflation to go all the way up to 2.5%—briefly. Are they not magnanimous? Taking upwards of a half percentage point away from the wealthy for—What?!—a couple of months?! I’m sure we’ll be screaming to recovery!
The terrible thing is that this really is big news. This really will help the economy. We could use a lot more. And we could have used this four years ago. But still, better late and weak than never and nothing.