From the WSJ: “The Fed Favors Guidance Over Bond Buys”:
The Federal Reserve’s forward guidance has been a lot more effective at keeping long-term rates down and stimulating the economy than its three bond-buying programs, says Eric Swanson, an economist at the University of California, Irvine, who until recently was a researcher at the San Francisco Fed.
Such low-rate promises, says Mr. Swanson, who co-authored an influential paper on unconventional Fed policy with San Francisco Fed President John Williams early last year, have had a perceptible downward effect on borrowing costs.
“The cumulative effect of the Fed’s forward guidance has surely been much more important than the effect of its long-term bond purchases,” Mr. Swanson said in an email in response to questions from The Wall Street Journal. He estimates the Fed achieved only a fairly modest 0.1 to 0.2 percentage point decrease in short-term rates from its second round of bond buys, which amounted to $600 billion.
“I think, going forward, the [Fed’s policy committee] views forward guidance as the better policy tool, which is why it’s comfortable winding down its long-term bond purchases now,” said Mr. Swanson, who was a senior research advisor at the San Francisco Fed and was previously a staffer at the Fed’s Washington-based board.
I thought this was not hard to grasp:
QE conveys the message that “we want to help the economy make a comeback”. (Pity it was done in an unproductive “on again, off again” style)
Forward Guidance is in effect telling everyone that the Fed expects the economy to remain in dire straits “forever”!
No wonder “borrowing costs” (a.k.a. interest rates) are kept down; and that doesn´t mean it is “stimulating” the economy. Quite the contrary!