Neil Irwin reports that “The debate over new Federal Reserve efforts to boost the economy has rapidly migrated from ‘whether’ to ‘how’” and lays out some options under consideration.
Something I think is important here, though, is somewhere between the “whether” issue and the “how” issue. It’s the question of how does the Fed frame its actions? In other words, what are they going to say they’re trying to do? There’s a difference between doing something as an emergency stopgap measure and saying that you’re doing it as part of a determined effort to move the price level higher. Part of what makes “conventional” monetary policy so appealing is precisely that it’s conventional. There’s a routinized relationship between a statement about a target interest rate, operational open market moves, and market expectations. When you go beyond the conventional, though, that routinized link between action and market expectations doesn’t exist. Consequently, framing statements can be important in determining what kind of impact actions actually have.