Why the Fed Is Like an Experimental Teenager

Besides the economic forecasts, which seem to get bleaker by the minute, the big news to come out of the Federal Open Market Committee's minutes today was that board members were divided on plans to pump money into the system by buying up mortgage and Treasury securities. (They ultimately did, by the way--more than $1 trillion of them).

Paul Ashworth, an economist with Capital Economics, called it a "scatter gun" strategy; fire enough bullets and one of them will probably hit the target. "One [FOMC] member only wanted to buy mortgage-backed securities and another member only wanted to buy treasury-backed securities, so the collegial thing to do was to say, OK, we'll just buy both," he said. He then gave the plan another nickname I liked even less: the experimental teenager approach.

But experimental or not, the minutes show that certain members of the board were pushing for even more purchases of long-term assets, so it wouldn't be surprising to see them buy up bundles in months ahead --especially if the TALF and PPIP plans don't flush out financial waste as hoped. So, given that impulse, there some kind of basis for their thinking on this, right?

"All of these quantitative easing programs are unprecedented, because even the bank in Japan never tried anything on this scale. There's no roadmap here," said Ashworth. "Central bankers have decades and decades of experience in gauging how one tiny movement up or down in the interest rate affects output and inflation. But they have zero experience in calibrating the effects of quantitative easing."

Great. Cross your fingers. Because it sounds like the Fed's board members are already crossing theirs.