“Extended Insurance”

  1. The Fed has never been comfortable with QE3
  2. Many thought that QE ineffective
  3. Bernanke felt compelled to clear the path for Yellen

But it has boosted “Forward Guidance” to make up (or more than make up) for the “taper”.

According to the “outlook”, interest rates are likely to remain down into 2016 because inflation will likely still be below the Fed´s target.

Taper On_1

The Fed would always say, about its securities purchases:

Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

As the chart shows (weekly data) that never happened:

Taper On_2

And that´s  (according to Scott Sumner) “A classic example of how interest rates tell us very little about the stance of monetary policy.”

The stock market has mostly been on an uptrend:

Taper On_3

And as David Beckworth illustrates, the QE + Forward Guidance group has performed significantly better than the Euro group (and better the more QE+FG):

Taper On_4

Just imagine if the Fed had been clear on its communications, something it could have accomplished by stating a level target for NGDP!

One thought on ““Extended Insurance”

  1. II think Churchill said, “The Americans will do it the right way, but first they have to do it every other way first.”

    That seems to describe the Fed, although it is probably retreating from QE too quickly….and what is the problem with having a large balance sheet? Only at the Fed do they talk about the “burden” of owning a few trillion in bonds…I’ll take ’em!

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