Monetary policy is not dead

Today the Federal Reserve announced it’s buying up $1.2 trillion in bonds as part of a program of quantitative easing. It’s a path to lowering interest rates once you’re in Paul Krugman’s famous liquidity trap.

A few weeks ago self-described right wing economist Scott Sumner suggested that quantitative easing be tried, and Tyler Cowen described his plan as the best he’d seen by far.

I know there’s been a surge of optimism lately, and an attendant degree of skepticism that we’re really even in a major crisis. This move should remind everyone that the Federal Reserve and Obama administration are still very, very worried about the state of the economy.

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