"Desperation" is probably too strong a word for what was in the air when the FOMC met on September 12 and 13, but it may not be far off the mark.
The press release outlining the committee's decision to embark on QE3 and keep monetary policy "highly accommodative" at least through mid-2015 certainly isn't a document that puts worries to rest. The release acknowledged the so-so state of the economy, noted that committee members are "concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions," and gave a nod to "strains in global financial markets [that] continue to pose downside risks to the economic outlook." QE3's $40-billion-a-month purchases of additional mortgage backed securities didn't come with a time limit; instead, the Fed will play things by ear, adjusting its actions as the data unfold and taking "appropriate account of the likely efficacy and costs of such purposes."
The dark tone of the FOMC's press release isn't the only reason to worry. During his press conference, Chairman Ben Bernanke used the adjective "grave" to describe the employment situation, made it explicitly clear that monetary policy alone can't put the glow of health back into the economy's cheeks, and fudged the key question of what good more easing would do in trying to unclog the credit transmission system. He also injected a dose of confidence-sapping vagueness into the proceedings, dancing as if he were Fred Astaire around repeated requests for specific details about how officials would determine when to make policy adjustments. And, for good measure, he slapped savers in the face by telling them to stop whining about the microscopically low yields that are ruining their lives.
Standing before the reporters and cameras, Dr. Bernanke had the air of a sincere, well-intentioned man who is beginning to realize that he is fighting the tide. The Fed has been using monetary policy to influence interest rates and asset prices in an effort to stimulate real demand and ignite growth in jobs. That policy isn't working, and it appears that there is little left that the Fed is willing or able to do except offer more of the same and hope for the best.
None of this should bode well for investors' confidence, despite the stock market's reflexive jump higher in response to another sugar-rush of quantitative easing (on that front, the sharp rise in gold ought to be a straw in the wind). Nothing that came out of the FOMC meeting improves the chances that sustainable economic growth and strong levels of job creation will return any time soon. That means that the economy will be weaker than it otherwise would have been when it comes time to confront the astronomical amount of debt that politicians and policymakers continue to incur.
Desperation might not be in order right now, but it probably is creeping into quite a few conversations at 20th Street and Constitution Avenue, on Wall Street, and on Main Street.