Fed Quietly Pushes Economy Forward

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If Congress were to consider another big stimulus program, it would set off rancorous debate and would probably never get approved anyway. This week, quietly and without fanfare, the Federal Reserve announced its own kind of stimulus program to get the economy off the mat. Adam Davidson


Some prominent liberals are calling on Congress to approve more stimulus spending to revive the economy. Many conservatives say no, it would be much better for Congress to make all the tax cuts from the Bush era permanent.

Adam Davidson of NPR's Planet Money team says the real economic stimulus won't come from Congress, it's already happening at the Fed and most people probably aren't aware of it.

ADAM DAVIDSON: The academic debate over whether fiscal stimulus is our only salvation or the worst idea that anyone ever came up with, that debate does not matter because here's just about the easiest prediction someone can make: A fiscal stimulus is not going to happen. There is almost no possible way the Democrats in Congress would go into a tough election by borrowing nearly a trillion more bucks.

A second massive stimulus, if it was even thought about, it would be on the front page of every paper, it would lead the nightly news, you'd hear about it on every cable chat show. So imagine how surprising it was that this very week - although there's a good chance you didn't notice - the Federal Reserve did something awfully close to announcing a huge new stimulus.

In the height of the crisis, back in January 2009, the Fed started to buy mortgages - a lot of mortgages, $1.25 trillion in mortgaged-back securities. There is a decent chance that the Fed effectively owns your house. The Fed doesn't normally muck about in peoples' homes.

The goal was something called monetary stimulus, but its effect is the same as fiscal stimulus, the kind passed by Congress. They basically have the same idea: get lots more money out into the economy.

The Fed plan was to hold those mortgages for a short time and then sell them as quickly as possible. This week, the Fed made a major shift in policy. They said not so fast. Technically, what they're doing is transferring some of the 1.25 trillion from mortgage securities to other types of securities, but the impact is largely the same: Our economy is going to be pushed forward, although maybe not terribly effectively, by a massive monetary stimulus from the central bank.

The Fed knows, of course, that most people pay very little attention to Fed announcements. Fed stimulus? That's a snooze on the business pages. Congressional stimulus? You hear people screaming about it all day long on cable news and on radio talk shows.

Now, this may be exactly how things are supposed to work. The whole idea of a central bank is to have a group of serious, economically trained folks who are not constantly worried about the next election. And many outside experts do support what the Fed is doing. But it does seem a bit strange that such an important decision received so little attention.

Adam Davidson, NPR News.

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