Fed considered extreme measures

[Bradford DeLong]

>edickens wrote:
>
>>  >From the perspective of the historical preoccupations of central bankers,
>>the FOMC blundered by getting locked into a transparent monetary policy.
>>This is yet more floundering around trying to find a way out--a task that
>>will be become urgent the next time the FOMC's international concerns come
>>into conflict with its domestic ones.
>
>But transparency's the thing everywhere, not just at the Fed. The 
>markets and the press are constantly complaining about the ECB's 
>lack of clarity.
>
>They could buy stock or junk bonds without telling us, couldn't 
>they? We don't half the rescues they undertake, I'm guessing. So 
>what about the possibility that this was an attempt to reactivate 
>the Greenspan put, to keep the recovery from derailing?
>
>Doug

Part of the first substantive paragraph of the minutes that did *not* 
make it into Peronet Despeignes's story:

"... The members agreed that the potential for such an economic and 
policy scenario seemed highly remote, but it could not be dismissed 
altogether. If in the future such circumstances appeared to be in the 
process of materializing, a case could be made at that point for 
taking preemptive easing actions to help guard against the potential 
development of economic weakness and price declines that could be 
associated with the so-called "zero bound" policy constraint..."

The minutes are written to make it seem as though this is the Board 
staff's long-run contingency planning bubbling up to the FOMC level, 
and being discussed there as an important but "highly remote" 
eventuality. From what I know of what is going on in the Board, that 
seems likely...

Certainly the minutes are not written as if Greenspan wants to send a 
signal that action of any kind is imminent.

Was it really a full decade ago that Larry Summers and I wrote about 
how it would be unwise to push trend inflation far below five percent 
because of the danger that one might then find that a single adverse 
shock would get the economy wedged into such an unpleasant position?

Brad DeLong