It's possible that the Fed's governors decided companies could at last be pushed off the fence by a further round of easing. Or perhaps they decided that they had to be seen doing something. After all, the Fed has a dual mandate to maintain price stability and promote full employment. Since Republicans in Congress had done their best to obstruct any fiscal policy that would support the economic recovery -- back in 2010, their leader in the Senate, Mitch McConnell, even said he wished they had been able to "obstruct more" -- all of the burden for putting Americans back to work fell on the Fed's shoulders.
The effects of that obstructionism are starting to dissipate, though, as job losses in state and local government, in large part the result of congressional stinginess, are finally slowing. The private sector has been slowly but steadily creating jobs since early 2010, so the unemployment rate could begin to fall more quickly at any moment.
As a result, if the economy finally does snap back to a healthy rate of growth, it'll be tough to figure out whether the Fed's action was decisive. Are we really supposed to believe that all the factors that made the Fed's governors doubt their own effectiveness for the past year or so suddenly disappeared? Or are they just jumping on Mario and Mitt's bandwagon of certainty?
We can't go through history twice -- once with the Fed buying securities, once without -- so there's no way to know for sure. Long-term interest rates like the Treasury's 10-year note have actually risen since last week's action, not fallen as the Fed might have hoped. But even this signal is hard to interpret. It could mean that other sources of uncertainty are making lenders nervous. Or it could be a sign that the markets expected a strong recovery; a surge in profitable economic activity usually comes with more demand for credit, so rates tend to rise.
In any case, it's too early to appraise the results of the Fed's move; only days, not months, have passed. And the Fed isn't just jumping on the bandwagon -- it's attaching a $40 billion per month turbocharger to the bandwagon. Still, the bandwagon carries the inertia of tens of thousands of businesses, so even a turbocharger might hardly make a perceptible difference.
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