The first two paragraphs of Wednesday’s Federal Reserve statement read like Edgar Allen Poe writing in the Financial Times. “Growth remains slow,” the nation’s central bankers write, with “continuing weakness in overall labor market conditions.” Investment is weak, the housing market is “depressed” and, cheeriest of all, “there are significant downside risks to the economic outlook, including strains in global financial markets.”
That dreary litany contains exactly one piece of good news: Inflation, the members of the Federal Open Market Committee report, has moderated, and could actually be on course to fall below the Fed’s unofficial target of 2 percent annual growth.
All of which helps explain the Fed’s announcement that it will commence “Operation Twist,” a $400 billion effort to push down interest rates and promote investment and hiring – and which makes the letter congressional Republicans sent to Fed Chairman Ben Bernanke on Tuesday so puzzling.