A Benjamin Cole post
The results are in, and it appears the Fed’s use of QE—faltering, dithering, at times mindlessly circumscribed in advance—was moderately successful in helping the U.S. climb out of recession.
Europe is still mired in econo-gloom, courtesy of the ECB’s monetary noose around its neck. Japan may only now be fighting its way out of perma-gloom by way of aggressive QE.
The U.S., in contrast, has posted slow growth since the end of the 2008-09 “great recession”.
True, the Fed should have been much more forceful in its application of QE, and its QE should have targeted results—such as “The Fed will conduct $100 billion a month in QE until we see four quarters of 6% NGDP growth.”
Recall now, the Fed announced in advance of its first two rounds of QE—QE1 and QE2—that the limited bond-buying programs would halt on a pre-determined schedule, regardless of economic circumstance.
In a sense, the Fed signaled retreat from the battlefield, afore setting foot therein. Even so, QE worked.
The Next Time
Looking ahead, the question is whether any central bank—including the Federal Reserve—will use QE to fend off a recession, or will central bankers only belatedly and begrudgingly resort to QE after millions are unemployed, and businesses start going belly up in droves?
Despite the qualified success of QE in the United States, and still near-dead prices, there remains a curious if unfounded aversion to QE in central banker circles.
For example as late as June of 2013, readers of the Marketwatch website were told the Fed’s QE program risked the “debasement” of the dollar, high inflation and “the ruination of our economy and lifestyle.”
That might sound like the ranting of an obsessed extremist who should be kept away from the microphone, but in fact it was mouthed by Dallas Fed President and FOMC board member Richard Fisher. (BTW, the core PCE inflation index is up by 1.4% in the last reported 12 months.)
But With Interest Rates Dead Already…
No recovery lasts forever, and the current (if flaccid) U.S. “recovery” is already longer than the post-war average. And interest rates are near zero now.
That makes the prospective use of QE all the more important. The Fed is likely out of ammo even before the next recession hits—lowering interest rates? They are dead now.
If the Fed shirks it duties due to an institutional bias against QE, the price will again be paid by millions of employees and employers, who will find total demand sinking, but due to no fault of their own.
Yet can one imagine the Fed using QE prospectively?
No.
How nice.
Historinhas 
Good post. One problem the central banks have is that they are still ruled by mainstream economists who believe that QE doesn’t work, in theory. Over at MainlyMacro the most out-there mainstream academic UK macroeconomist, Simon Wren-Lewis, refuses to accept that monetary policy can operate at the ZLB. I’ve recently been trying to engage but making no headway. It is almost as if he prefers fiscal policy, and only spending, to boot. So like PK at the NYT.
I have new name for them, “monetary policy (at the ZLB) deniers”. It clearly works at the ZLB, if not well, as you say. Yet the S W-Ls, PKs and many if not most central banks deny it can, even while some even use it. Of course, that’s why QE doesn’t work well, like giving a potato and oil to a chimpanzee and asking him to make fries.
James, interestingly on central bank (and “most out-there mainstream economists”, academic or not) obtuseness, there´s this WWII story about Himmler´s attempt to destabilize the British economy by flooding England with perfect copies of 5-pound notes. To cut the story short, when fake 5-pound notes showed up, the Bank of England claimed they were genuine because “no one on earth was capable of counterfeiting a British 5-pound note, and nothing could convince them otherwise”!!!
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Central bankers cannot change. Fisher today will tell you QE risks hyperinflation and ruin. The CPI just posted a deflationary month.
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