The policies that the Fed embarked on in late 2007 are a sharp departure from the old way of performing monetary policy. In fact, it is difficult to state that the Fed is any longer in the business of traditional monetary policy — understood in the United States as aiming for low inflation and smoothed output volatility. A new breed of monetary policies better referred to as "quasi-fiscal" policies has become the norm.
The Fed's policies have a fiscal flair to them for two reasons.
First, no longer are output and inflation the primary concerns. The Fed has framed any reference to inflation over the past four years in the context of either:
- the low levels of price inflation erasing inflationary fears from pursuing unorthodox monetary policies, or
- the threat of deflation, thus creating the "need" for monetary expansion to ward off its ill effects.
Inflation has not been a direct concern in the sense that the Fed's role is to control it. Instead, it has been viewed as a constraint on Fed policies to pursue other ends.
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