Federal Reserve officials, increasingly concerned over signs the economic recovery is faltering, are considering new steps to bolster growth.
With Congress tied in political knots over whether to take further action to boost the economy, Fed leaders are weighing modest steps that could offer more support for economic activity at a time when their target for short-term interest rates is already near zero. They are still resistant to calls to pull out their big guns — massive infusions of cash, such as those undertaken during the depths of the financial crisis — but would reconsider if conditions worsen.
Top Fed officials still say that the economic recovery is likely to continue into next year and that the policy moves being discussed are not imminent. But weak economic reports, the debt crisis in Europe and faltering financial markets have led them to conclude that the risks of the recovery losing steam have increased. After months of focusing on how to exit from extreme efforts to support the economy, they are looking at tools that might strengthen growth.
How about cut taxes? How about don’t let the Bush tax cuts expire?
Make the tax cuts permanent, and cut federal spending. These remedies are within the power of the Congress. For the Fed to drastically increase the money supply while Congress is being so profligate would be a disaster.
This is going to require electing a new, more sensible Congress, making it clear to the new members that a return to the old big-spending ways will not be tolerated, and persuading the President to sign sensible legislation or replace him as well at the next opportunity.