Today’s Federal Reserve announcement is a big deal. We’re not just getting another round of quantitative easing, but an open-ended one that will continue until the labor market improves.
And accommodative monetary policy will continue “for a considerable time after the economic recovery strengthens,” with short-term rates at or below 0.25 percent through mid-2015.
This is great news for the labor market and the economy, and the markets are reacting as such: As of 1:30 PM, the S&P 500 is up 1.3 percent on the announcement. This is consistent with past experience: We have repeatedly seen that when the Fed announces easing, the equity markets react favorably.
When the Fed wasn’t being so easy, it came under fire from (among others) Paul Krugman for acting in the interests of a “rentier class.” This is a group of wealthy bankers and bondholders that benefits from low inflation and doesn’t have to care about unemployment, and therefore desires excessively tight monetary policy. Read more.....