Is the upcoming election holding the Fed back?
The US economy is going nowhere fast. Growth is low, unemployment is high and inflation (core and headline) are falling below 2%, re-kindling worries about deflation.
But the Fed is sitting pat. Sure they've done a lot in my view. Dropped rates to zero, promised to keep them there a while, pumped trillions of reserves into the system, ran a couple rounds of quantitative easing and don't forget about "operation twist". Nor do I have much confidence that, at this point in the proceedings, monetary policy is capable of a miracle cure for the economy.
But holy spumoli people, don't they have to do something? Sure they do; they're the Fed, dammit!
Bernanke can't keep saying that the Fed is not out of ammo but never fire the gun. The Wolfersons are KILLING him!
Could it be possible that the Fed does not want to be seen "goosing" the economy in the run-up to the Presidential election?
Might the Fed be guarding its vaunted "independence" by avoiding any actions that could be considered politically motivated?
Will we see QE3 or a higher inflation target on the first Wednesday in November?
I think this has to be a factor in the Fed's decision about the timing of further action. Things may worsen enough for them to feel they have to act no matter what, but I think they may be trying to muddle through with the status quo until after the election.
Tell me why I'm wrong in the comments.