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It Was Not Effective, But We’ll Do It Again

Boston Fed President Eric Rosengren has some interesting comments about QE today.

Although large scale asset purchase programs may not be as effective as previously believed, Federal Reserve Bank of Boston President Eric Rosengren said Friday, “it is quite likely” that the programs will be needed in the future.

Crisis-Era Failures

The Federal Reserve’s signature bond buying stimulus program undertaken during and in the wake of the financial crisis was largely a dud for the economy, argues a new paper authored by a group of prominent economists.

The paper, which was to be presented Friday at a conference held in New York by the University of Chicago Booth School of Business, takes aim at the central bank’s controversial purchases of long-term Treasury and mortgage debt.

Given the unorthodox nature of the stimulus, arriving in an economy undergoing huge stress, central bankers and academics have long struggled to understand what the Fed got for a policy that took its portfolio of cash and bonds from a pre-crisis level of just over $800 billion in 2007 to a peak of $4.5 trillion.

“We find that Fed actions and announcements were not a dominant determinant of 10-year yields and that whatever the initial impact of some Fed actions or announcements, the effects tended not to persist,” the paper’s authors wrote. Their findings were based on a study of Fed policy announcements referenced against market reactions.

William Dudley of the Federal Reserve Bank of New York and Eric Rosengren of the Federal Reserve Bank of Boston both said on a panel discussing the paper’s findings that they agree it’s hard to understand the exact impact of the bond buying.

…click on the above link to read the rest of the article…

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