The Fed takes some action

The Fed is going to swap some short-term (<3 year) Treasuries into long-term (6-30 year) Treasuries to push down the long-term interest rates.  This is intended to stimulate business investment (the build up of their capital stock), since businesses decide to invest on the basis of the comparison between:

  1. the benefits they expect to receive from their investment (i.e. the return rate) and
  2. the cost of using money (i.e. the interest rate, once they adjust for inflation, risk, and other premia).
If the interest rate goes down, then it costs less for businesses to expand their capital stock and hire labor.  So, this move by the Fed is intended to alleviate conditions in the labor market, which — at a 9.1% unemployment rate — is in a very tough spot.  Doing something is better than doing nothing, especially when fiscal policy is not an option due to political conditions.
Here’s the statement by the FOMC:

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