Bernanke Hits It Out Of The Park

FOMC Statement, Sept. 13th, 2012:
“If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.”

I had predicted that the FOMC would announce another round of QE, in the amount of $500B. I criticized the decision in advance by saying that the Fed should target outcomes rather than endless incremental inputs.

I was wrong; I underestimated Bernanke’s powers of persuasion with the hawks.
It looks like he has finally used his considerable authority to begin to practice what he used to preach as a professor.

He has announced that the Fed will continue to buy securities (QE3+) until the outlook for the labor market improves substantially. While it is true that he will do this in increments of $85 billion per month, he made an open-ended promise to keep buying bonds until his target is achieved. This is a major intellectual breakthough for the Fed.