A US Fed Official Questions The Effectiveness Of Post-crisis QE Policy
A US Fed official questions the effectiveness of the central bank’s post-crisis QE monetary policies, saying they have done little to stimulate the economy.
The VP of the St. Louis Federal Reserve says the practice of QE (quantitative easing) is “not well-developed” and generated results that are “mixed” at best.
In a White Paper dissecting the Fed’s actions to stem the financial crisis of Ys2008/2009, Stephen D. Williamson, VP of the St. Louis Fed, finds fault with 3 Key policy tenets.
Specifically, he believes the Zero interest rates in place since Y 2008 that were designed to spark good inflation actually have resulted in just the opposite. And he believes the “forward guidance” the Fed has used to communicate its intentions has instead been a muddle of broken vows that has served only to confuse investors.
Lastly, he asserts that QE, or the monthly debt purchases that swelled the central bank’s balance sheet past the $4.5-M mark, have at best a tenuous link to actual economic improvements.
“There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed — inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation,” Mr. Williamson wrote.
“For example, in spite of massive central bank asset purchases in the US, the Fed is currently falling short of its 2% inflation target,” he added. “Further, Switzerland and Japan, which have balance sheets that are much larger than that of the US, relative to GDP, have been experiencing very low inflation or deflation.”
Mr. Williamson acknowledged that then-Chairman Ben Bernanke’s Fed, through liquidity programs like the Term Auction Facility that injected cash into banks, “helped to assure that the Fed’s Great Depression errors were not repeated.”
Have a terrific week.
HeffX-LTN
Paul Ebeling
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