Notebook > Money
Federal Reserve Building: iStock • Hoenig: Nati Harnik/AP

Not-so-great expectations

Money | Facing a slow recovery, the Fed pumps more money into the economy

Issue: "Rocks in their heads?," Sept. 11, 2010

Conceding that the economy has slowed and that the pace of recovery "is likely to be more modest in the near term than had been anticipated," the Federal Reserve announced it would continue to keep its benchmark interest rate at "exceptionally low levels" for "an extended period." The central bank also said it would resume its policy of "quantitative easing" (adding money to the economy) by buying Treasury notes and securities. Barron's reported that the new purchases are expected to total between $250 billion and $300 billion over the next year. Buying Treasuries, along with massive amounts of mortgage-backed debt, was a key Fed strategy from late 2008 until March of this year, pumping nearly $2 trillion into the economy and helping drive down long-term borrowing rates.

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City and a persistent critic of Fed policy, worried out loud that central-bank actions are setting the economy up for another fall. "As much as I want short-term improvement, I am mindful of possible longer-term consequences of zero interest rates and further easing actions," he said during a speech in Nebraska. "In trying to use policy as a cure-all, we will repeat the cycle of severe recession and unemployment in a few short years by keeping rates too low for too long."

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Fudging the numbers

New Jersey became the first state ever charged with violation of securities laws for what a Securities and Exchange Commission (SEC) investigator described as "withholding and misrepresenting pertinent information about its financial situation." The SEC accused the Garden State of not properly funding the pensions of state employees but claiming that it was. State officials, while not admitting any wrongdoing, settled the charges by accepting a cease-and-desist order. No individuals were named as culpable, but investigators said the misrepresentations occurred from 2001 to 2007 under three previous governors-one Republican and two Democrats.

The SEC stressed that the New Jersey action should be interpreted as a warning to other governments. "We have a concern that there could be other states . . . or local governments out there that are not adequately disclosing the extent of their pension fund liabilities," Elaine Greenberg of the SEC's municipal securities and public pensions unit told the Washington Post. "By
bringing this case, we hope that other states and municipalities will take notice."
Joseph Slife is the assistant editor of

Joseph Slife
Joseph Slife

Joseph is the senior producer of WORLD Radio and the co-host of The World and Everything in It.


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