November 14, 2011 Reading Time: 2 minutes

By all accounts in the news, the FOMC basically threw up its hands at its meeting this week, deciding it can’t do anything constructive to improve economic conditions. The official statement included such downers as: “continuing weakness in overall labor market conditions,” “significant downside risks to the economic outlook” and “unemployment will decline only gradually.” In a post-meeting press conference, Chairman Bernanke went even further, admitting “we haven’t gotten the economy back to where we want it to be.”

Yet amid this gloomy outlook, the Fed has decided not to “act”—i.e. not to attempt further “stimulus” at the moment—but merely to continue with its existing policies of near-zero short-term interest rates, along with the “twist” maneuver designed to pull down long-term rates.

So what does all this mean for the economy? Conventional wisdom has it that the Fed is ready and willing to act (print more money), but they’re waiting for just the right time. This is probably true; I don’t see an end to the money printing either. But reading between the lines of these Fed statements and the news commentary, it almost seems like the Fed has reached the end of its rope, conceding that there’s nothing they can really do.

After all, in three short years, the Fed has already gone on an international bailout, lending, and stimulus spree, pumping almost $2 trillion into the US banking system. This has failed to bring unemployment down much, but it has brought inflation up—a full 5 percentage points for CPI (although the Fed deftly ignores this number). More of the same actions—more money printing, more QE, more stimulus—will bring more of the same results: more inflation and no effect on unemployment. The Fed seems to be coming to terms with this, but don’t hold your breath; when the time comes, the money printing will again commence in earnest, and with it the price inflation.

Tyler Watts is an assistant professor of economics at Ball State University.

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