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Kass: Is the Fed Overreaching?

This column originally appeared on Real Money Pro at 7:59 a.m. EDT on Aug 27.

NEW YORK (Real Money) --

Following careful deliberations at its recent meetings, the Federal Open Market Committee (FOMC) has reached broad agreement on the following principles regarding its longer-run goals and monetary policy strategy. The Committee intends to reaffirm these principles and to make adjustments as appropriate at its annual organizational meeting each January.

The FOMC is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.

-- Fed press release (Jan. 25, 2012)

The Fed is now considering more cowbell.

More easing might be telegraphed as soon as Jackson Hole later this week and could be implemented as soon as in the next Fed meeting in September.

According to various members of the Fed, including Chicago Fed President Charles Evans, the U.S. economy is slowing -- in large part, due to the weakening economies in the eurozone and China.

If this is correct, it means that our Fed is responding to an external economic problem with unprecedented internal (domestic) monetary pump priming.

My question is whether it is the role of our Fed to respond to these external problems. If so, to what degree? If monetary policy is indeed responding to non-U.S. economic issues, is our Fed becoming the central banker to the world?

Is this policy a big stretch of the Fed's mandate? (See above quote before answering.)

Finally, aren't external problems better dealt with by those non-U.S. parties experiencing them? If we, in our country, don't like the manner in which other nations are dealing with their financial woes -- well, too bad, it's not our country, not our problem!

At end of day, isn't domestic monetary policy in response to external fiscal and other problems not only doomed to failure but doesn't it also increase mid- to longer-term risks in our economy?

Isn't the U.S. economy meant to have business cycles that trend down as well as up? And why is natural price discovery such a bad thing?

Why, all of the sudden, does it seem to be the case that a recession is not allowed by our monetary authorities? Does "too big to fail" embrace a much broader definition that just banks?

Capitalism should hold rewards and risks. Isn't this the nature of our system?