KRUGMAN: The Fed May Have Just Made A Historic Mistake, And Done More Damage Than It Realizes

[xchrom]

http://www.businessinsider.com/krugman-on-the-taper-2013-6

The most important story in the world is the change of direction in U.S. interest rates, which coincides with the change in tone out of the Federal Reserve. On Wednesday the Fed indicated that so long as its economic projections come to pass, it plans to slow down on Quantitative Easing later this year, with an eye towards totally ceasing bond purchases sometime in 2014.
The markets puked on the news, and interest rates shot up, a move that was exacerbated by Bernanke himself saying he was not worried about the rise in rates.

According to Paul Krugman, it's possible this will end up as a "historic" mistake.

If the economy recovers, then fine, whatever, the Fed will get away with it.



A Potentially Tragic Taper


http://krugman.blogs.nytimes.com/2013/06/20/a-potentially-tragic-taper/?_r=0

I will be traveling today, so limited blogging (and yes, I’m still in Yurp, so “today” is Thursday). But I did want to weigh in briefly on the Fed’s latest, in which Bernanke confirmed that the Fed is getting significantly more hawkish — based on relatively optimistic forecasts.

My reaction is, this is not good. They might get away with it, but there’s also a serious chance that this will end up looking like a historic mistake.

Bear in mind, first, that the US economy is still deep in the hole, which is especially obvious if you look at employment rather than unemployment:




Aging of the population accounts for some but not much of the fall in the employment ratio; the fact is that we are still a very long way from acceptable employment levels. Meanwhile, inflation remains below the Fed’s target. Maybe the Fed believes that the situation will improve — but as everyone points out, the Fed has been consistently over-optimistic since the crisis began. And for now the economy still needs all the help it can get.

[chervilant]

1. When Krugman speaks,

people should listen -- particularly Bernanke and his ilk. (If this is a recovery, I'm pink with chartreuse polka dots...)

[rurallib]

2. sure be nice if our 'liberal' president would listen

to at least one liberal economist.

[roamer65]

3. I think it was a move to subdue the markets a bit.

The Fed is not going to be able to stop QE, actually. Our debt has become so large that interest payments on it will become unsustainable rather quickly if interest rate rise too much.

QE is here to stay and I expect may actually increase under the current currency war.

[Safetykitten]

4. He is oblivious to the "fact" the economy is completely recovered...did I get that right?

Everyone knows it. Why can't he accept that?