The Federal Reserve has signaled its willingness to continue, and even expand, quantitative easing (Bloomberg).

The current QE regime calls for the Fed to purchase $85 billion of bonds monthly, a truly staggering figure. But continued weakness in the economy, especially the employment markets, may persuade the central bank to step up the pace:

The Fed’s statement yesterday that it’s “prepared to increase or reduce the pace of its purchases” was a signal that its $3.32 trillion balance sheet is a flexible tool for monetary policy that can be adjusted up or down, like interest rates.

Although I am not a fan of the Fed these days, one must concede they are trying. Unlike the Obama Administration, which is in denial about the lackluster state of the economy, the Fed sees continuing trouble and is trying to fix it, especially the chronic unemployment problem:

Payrolls in March expanded by 88,000, slowing from a gain of 268,000 the prior month. A Labor Department report tomorrow will probably show an increase of 145,000 in April, while the jobless rate stayed at 7.6 percent, according to the median forecast of a Bloomberg survey of economists.

The jobless rate is about two percentage points above a level Fed officials would define as full use of labor resources, with nearly 40 percent of the jobless having been without work for 27 weeks or more.

There is an old saying that “when all you have is a hammer, every problem looks like a nail”. They have been hammering for five years now, and surely the law of diminishing returns has kicked in.

The cumulative effects of ramping up the money machine and pushing interest rates to near zero look worrisome. Sure, the stock market is booming, but that is a reflection of low interest rates, not a healthy, growing economy. And savers, especially seniors who traditionally rely on interest income, are being tempted to switch to riskier equity investments. Or, worse, are liquidating savings altogether to pay their bills.

In medical terms, the Fed has understood the symptoms but not the cure. To be fair, this problem is beyond the scope of their mandate. I just wish they would admit it. Then the nation could detox and focus on the root cause of the problem- the White House and Capitol Hill. The politicians have poisoned the economy with a witches’ brew of regulation, taxes, crony capitalism, out-of-control spending and an anti-growth agenda.