1 The purpose of the new asset purchase program, like all of the monetary policy actions taken by the FOMC since the onset of the global financial crisis, is to fulfill our congressionally mandated objectives of promoting maximum employment and price stability.
The short run tradeoff works because economic actors can be surprised by unexpected loosening, and the surprise can have positive growth effects. In the long run, the central bank loses its power to surprise, and the public embeds its correct forecast of how much inflation the central bank will create into all nominal variables such as interest rates.