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Some at Fed Are Urging Pre-emptive Stimulus

NY Times [1]
July 31, 2012

WASHINGTON — Some Federal Reserve officials are reviving an idea that rose and fell with Alan Greenspan, the former Fed chairman, as they seek to persuade colleagues to take new action to stimulate growth.

Central bankers generally set policy based on their judgment about the most likely path for the nation’s economy. But Mr. Greenspan argued that the Fed sometimes should do more than its forecast suggested, buttressing the economy against large, potential risks. He described such moves as “taking out insurance.”

On the eve of the Fed’s policy-making committee meeting on Tuesday and Wednesday, members who favor additional action argued that the likely path of the economy was itself sufficient reason for action. The committee predicted in June that without new measures unemployment would fall slightly, if at all, in the second half of the year.

But officials, including the Fed’s vice chairwoman, Janet L. Yellen, have sought to reinforce the case for action by arguing that the Fed also should seek to offset the looming risk that a European turndown will set off a global financial crisis, or that a failure to dismantle the potential year-end fiscal cliff of government spending cuts and tax increases will tip the economy back into recession.

Full article here [1]