The Financial Times has an excellent article today reviewing the events of last week when the markets see-sawed from huge losses to huge gains and back again.  The volatility was scary,  nerve-wracking and inexplicable for investors, policy makers and mere mortals.

But somewhat lost in all the gyrations of the markets and the pontifications of the market watchers was the Fed’s dramatic actions and statements at and after its meeting on last Tuesday.  As summarized in the article, “In a move both unexpected and unprecedented, it promised to keep interest rates close to zero until mid-2013, breaking with years of discomfort over making commitments to future policy.”  It then quoted Alan Blinder, professor of economics at Princeton and a former vice-chairman of the Fed: “The action was very surprising, I would say stunning.”

Let’s be clear about exactly what the Fed did:  it has announced what its policy is going to be for the next two years, which is to keep the interest rates it controls effectively at zero.  For a highly cautious institution with a history of saying as little as possible about exactly what it is doing, never mind what it might do, this is remarkable, bordering on unbelievable. 

But, what was really stunning and virtually unremarked upon was the basis for the Fed’s action: it would only take such action if it was highly confident that the economy was going to, at best, struggle for the next two years, if not double dip into another recession.  That is terrible news in economic and human terms.

The ongoing costs of the Wall Street meltdown and financial crisis includes about 15 million Americans unemployed, about 10 million underemployed, the highest long term unemployment on record, skyrocketing uncounted unemployed because they’ve given up looking after months if not years of fruitless searching, foreclosures continuing at historic highs and on and on.  What the Fed’s actions say is that it doesn’t’t expect any of this to get much better any time soon.

Add tragic to the unexpected, unprecedented and stunning actions of last week.