In its latest policy statement on Wednesday the Fed concludes there are "significant downside risks to the economic outlook, including strains in global financial markets."
To combat these headwinds, the Fed announced "Operation Twist," a widely expected program to bring down long-term interest rates. On top of that, the central bank said it was back in the business of investing in mortgage back securities to help prop up the U.S. housing market. (See: "Very Unusual" Fed Action Fails To Boost Animal Spirits: Dow Drops 285)
The Daily Ticker's Aaron Task spoke to former Fed Governor Mark Olson, now co-chair of Treliant Risk Advisors, a compliance and strategic advisory firm specializing in the financial services industry, to get his take on the overall state of the U.S. economy.
Olson agrees with the Fed's assessment.
"There is a lot of slack in the economy," he says, highlighting the nine consecutive months of "tepid" growth and unemployment that remains above 9%. "It is very soft and it is going to be a significant period of time before we see any significant turnaround in economic conditions."
But Olson believes the Fed has exhausted nearly all its policy bullets to boost the U.S. economy and does not believe the aforementioned monetary policy moves will do much to help. Fed Chairman Ben Bernanke actually said as much during his Jackson Hole, Wyoming speech at the end of August.
So why then did Fed act?
"It is a move in the absence of any other body within the federal government taking action. We have not hand any change, for example, in tax policy; we have not had Congress willing to address fiscal policy," says Olson. "The federal government has yet to produce a budget in the last several years. The one element in our policy that seems to work is what the Federal Reserve can do."
There are some in Congress, however, who'd wish the Fed would stand down on additional easing. On the eve of the two-day FOMC meeting, GOP leaders sent a letter urging Chairman Ben Bernanke to resist new stimulus programs.
"The American people have reason to be skeptical of the Federal Reserve vastly increasing its role in the economy," the lawmakers wrote, reports the AP.
Olson considers such criticism normal for such tough times. "In a soft economy the members of the Fed become a whipping boy," he says.
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