I never liked quantitative easing. It's misunderstood by almost everybody. Flattening the yield curve is not stimulative; flattening the yield curve is anti-stimulative.
Sentiment: NEGATIVE
Long before folks fretted the demise of 'quantitative easing,' I fretted its existence. It proved the reverse of its image, an antistimulus, and we've done okay not because of it, but despite it.
The Federal Reserve can only buy Treasuries and agencies, and moreover quantitative easing typically involves buying longer-term Treasuries and agencies in terms of bills, for example.
The Fed contributed to the financial crisis, keeping interest rates too low for too long. I give them credit for responding and stabilizing the economy and the financial sector during the crisis. But then they tried to do too much with quantitative easing that went on forever, just dramatically exploding their balance sheets.
Every time the Fed implements 'quantitative easing,' a.k.a. printing more money, two things go up: taxes and inflation. When taxes and inflation go up, more jobs are lost.
It's appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time.
The Fed should make a clear commitment to stable money to reduce the swings in interest rates and inflation. Instead, it champions and flaunts unstable money. This encourages momentum trading and the growth of derivatives. Meanwhile, layers of financial regulation make Washington bigger and more powerful but don't fix the underlying problems.
I think the Fed is not designed to have effective tools to deal with the economy. It should settle for just controlling the money supply. And - if it insists, it can worry about inflation.
However, in spite of the general perception that monetary policy should be conducted so as to avert deflation, a central bank cannot lower interest rates below the zero lower bound.
The Fed's policy choices can always be debated, but the quality and commitment of the Federal Reserve as a public institution is second to none, and I am proud to lead it.
True enough, the Fed needs radical reforms. In particular, it needs to replace its failed forecasting models and be rid of the academics who overwhelm the Fed system.
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