Fed Congressional testimony – often states what we already know – Now what?

So let’s get this straight, the US economy is facing “numerous difficulties”, growth risks are “skewed to the downside”, restoring the financial markets is “a top priority”, and inflation risk has “intensified lately” The data has already shown this and financial markets have reacted accordingly. The issue is what can be done to change this downward direction. Of course, the first law of problem management is determining what is the problem and in this case there was no sugar-coating by the Fed. Now the issue is what to do about it.
The Fed has lowered rates. The Fed has offered lending facilities in an unprecedented manner. The Treasury has developed housing programs and has provided coordination of activities. Some tax relieve has been given for a stimulus package so Congress is taking some action but all of this is under an environment of rising inflation which may be at odds with the stimulus.
The US economy is in a strange state of disequilibrium. (Disequilibrium is economist jargon for not being sure what can happen next, other that something will change.) There is a lag between any policy action and the response in the economy, so we do not know the true impact of these policy changes. The economy is reacting in real time to events yet the possible policy action has a delayed reaction once we get beyond the announcement effect. Consequently, any change today will not reverse what has already been done and may take time before it will impact trends in financial market prices. Policy-makers have to be forward looking with their choices no different than market players look ahead for price effects. Most legislation will not have any immediate impact this summer other than through a change in current negative expectations. That may be enough to reduce the decline but is unlikely to have a long lasting effect.