The
The Federal Reserve Board operates under two mandates – maintaining low inflation and stimulation the economy at the same time. The immediate consequences of the expected money supply growth would most probably lead to some short-term irrational, positive mood shift of the markets and the consumers. In the long run, however, any such change would foster the inflationary processes in the
In such circumstances we would better be interested in the potential of the monetary policy in stimulating the American consumers and businesses, rather than the short-term capital markets influence. Any inflated cash market stimulation would not yield substantial real growth of the economy and the markets, but nominal.
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It is true that monetary policy has almost zero effect on real growth in the long run, but it can be very effective against short term shocks like the liquidity crisis, according to me.
In fact, the Fed is not increasing the monetary supply if you consider that banks are less and less willing to lend. This reduces the multiplicator, and actually leads to a contraction of money supply. Accordingly, the Fed acts to counteract this shock contraction. Monetary supply has actually decreased even after the Fed has provided this flush of liquidity (this is why short term interest rates are so high).
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