So the price for the Fed’s next round of pump-priming turns out to be: $600 billion.
Here’s the rationale:
Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak.
It’s not entirely clear how this new round of quantitative easing will actually do much to address any of that. If businesses aren’t investing when interest rates are almost zero, then they probably aren’t going to invest a lot more when interest rates are even closer to zero. If credit is tight when interest rates are basically zero, credit probably will be tight when interest rates are even closer to zero. And none of this is going to address that “lower housing wealth” — which, of course, it shouldn’t: Continued efforts to prop up housing prices or to reinflate the housing bubble are part of the problem.
The Fed is, practically speaking, out of arrows in its quiver. This is really Congress’s problem now — it will take congressional action to clear away the barriers to saving, investing, and production that are preventing a robust recovery. Unfortunately, one of those barriers is … Congress. That new Republican majority in the House has an enormous task in front of it, and I am not entirely convinced its members are up to it.
UPDATE: Business Insider points out that $600 billion isn’t really the whole show. The Fed will also be reinvesting proceeds from other securities in its portfolio, driving the real number up to nearly $1 trillion.
– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.