{"id":2493,"date":"2024-08-18T12:34:00","date_gmt":"2024-08-18T10:34:00","guid":{"rendered":"https:\/\/kraftscharling.dk\/?p=2493"},"modified":"2025-03-13T12:43:00","modified_gmt":"2025-03-13T11:43:00","slug":"qe-stimulus-stop-at-the-fed","status":"publish","type":"post","link":"https:\/\/kraftscharling.dk\/en\/qe-stimuli-udelukket-for-fed\/","title":{"rendered":"QE stimulus stop at the Fed?"},"content":{"rendered":"

Is QE as an Economic Stimulus Tool Excluded for the Fed Going Forward? Will the Shock from Inflation Surges' Impact on the Fed's Balance Sheet Lead to a Sharper Separation Between Fiscal and Monetary Policy in the U.S.?<\/em>
<\/p>\n\n\n\n

Monetary policy is determined by central banks. However, central banks are influenced by both politicians and the discourse among professional economists. The recent inflation surges have led to a reassessment of what impacts the economy and to what extent. Is this the end of QE for anything other than a buffer during financial turmoil?<\/p>\n\n\n\n

The Fed is Holding Back on Easing Monetary Policy<\/h2>\n\n\n\n

Fed har l\u00e6nge holdt igen med at s\u00e6nke renten. Tilbageholdenheden sker selvom distress stiger blandt f.eks. erhvervsejendomme i USA. USA\u2019s “problem” er, at besk\u00e6ftigelsen forts\u00e6tter med at stige, og if\u00f8lge den \u00f8konomiske erfaring og forst\u00e5else l\u00e6gger det et opadrettet pres p\u00e5 inflationen (eftersp\u00f8rgsels drevet). Det blev i maj understreget i en rapport fra Peterson Institute for International Economics (PIIE)<\/a> The Fed has long held back on lowering interest rates. This restraint persists even as distress increases in sectors like commercial real estate in the U.S. The \"problem\" for the U.S. is that employment continues to rise, and according to economic experience and understanding, this puts upward pressure on inflation (demand-driven). This was emphasized in a May report from the Peterson Institute for International Economics (PIIE) authored by former Fed Chair Ben Bernanke and former IMF Chief Economist Olivier Blanchard.<\/p>\n\n\n\n

For the anomalies surrounding inflation\u2019s impact on economies continue\u2014see, for example, https:\/\/kraftscharling.dk\/renten-versus-oekonomisk-vaekst\/. The real-world outcomes continue to diverge from predictions based on models like the Phillips curve, the Taylor rule, the Volcker rule, and key aspects of Milton Friedman\u2019s framework. For instance, we see a decline in U.S. inflation even though employment continues to rise, and there is a labor shortage in several sectors.<\/p>\n\n\n\n

... Because the Economic Anomalies Persist<\/h2>\n\n\n\n

Economists and central bank governors are divided on the reasons why. This uncertainty creates a vacuum. The market reacts to these disagreements every time FOMC minutes are released or when FOMC members give speeches. This increases uncertainty and may dampen market confidence (i.e., risk appetite) in the long term.<\/p>\n\n\n\n

The broad valuations are partly a result of the market\u2019s fundamental belief that the Fed is in control of the economy. This belief is challenged when basic economic mechanisms behave contrary to theory, i.e., experience and understanding of the internal logic (coherence).<\/p>\n\n\n\n

Over the past year to eighteen months, this uncertainty has sparked a broader debate on, among other things, the appropriateness of the Fed\u2019s communication strategy. The topic is long-term and principled but could potentially ignite a spark in the U.S. election campaign.<\/p>\n\n\n\n

Has Transparency Been Too Great?<\/h2>\n\n\n\n

In early May, the Hoover Institute held a conference on global monetary policy. Former Treasury Secretary Larry Summers summarized the consensus at the end:<\/p>\n\n\n\n

    \n
  • \"Back to humility\"<\/em>Each decade, economies face some shocks. You cannot write rules and predict these. Instead, you should see them as valves that need to be released periodically.<\/li>\n\n\n\n
  • Avoid forward guidance<\/em>. The markets don\u2019t believe in it anyway, and it restricts the Fed\u2019s future actions.<\/li>\n\n\n\n
  • Use QE only to ensure financial stability<\/em>, not as an economic growth instrument. QE shortened durations and cost the U.S. half a trillion USD.<\/li>\n\n\n\n
  • Avoid specific numerical targets whenever possible<\/em>Credibility stems from a social consensus that low inflation is good, not whether it is 1.8% or 2.1%. Targets should be long-term and softly formulated, e.g., as a range.<\/li>\n\n\n\n
  • Avoid ambiguity<\/em>, i.e., stop releasing minutes of FOMC deliberations and cease speeches where FOMC members express personal views.<\/li>\n<\/ul>\n\n\n\n

    Should Central Bank Governors Be Independent and Apolitical?<\/h2>\n\n\n\n

    From a rational and managerial perspective, this makes sense. However, the problem is timing, and the fact that U.S. monetary policy today is NOT entirely apolitical.<\/p>\n\n\n\n

    Interest rate decisions are made by the FOMC, which consists of the heads of the 12 Fed districts. Voting rights rotate.<\/p>\n\n\n\n

    But even though central bank governors in the U.S. are appointed based on professional qualifications, they are very open about their political affiliations. This was one of the public reasons why Trump refused to extend Janet Yellen\u2019s contract (a Democrat) and instead appointed Republican Jerome Powell. The head of the Minneapolis Fed, Neel Kashkari, has, for example, identified as a former Tea Party member and (for a period) as an advocate of MMT.<\/p>\n\n\n\n

    This creates a risk to public confidence when the heads of an institution whose identity is built on independence and professionalism are deeply political and even participate in fundraising events.<\/p>\n\n\n\n

    Even if professional decisions are made objectively and dispassionately, the credibility of FOMC members is compromised when their apparent independence can be questioned. <\/p>\n\n\n\n

    Because this is an election year, where democracy itself is a topic of debate, even the idea of restricting FOMC members\u2019 freedom of expression could spark a wave of paranoia.<\/p>\n\n\n\n

    Some Politicians Disagree<\/h2>\n\n\n\n

    Trump has argued for curbing the Fed\u2019s current independence, including by appointing the head of the FOMC for a one-year term.<\/p>\n\n\n\n

    Trumps finanspolitiske agenda vil is\u00e6r afh\u00e6nge af Feds villighed til at finansiere. Men det vil Kamala Harris’ \u00f8nske om skattelettelser til middelklassen ogs\u00e5, omend i knap s\u00e5 h\u00f8j grad.<\/p>\n\n\n\n

    Therefore, it matters who has the most influence in the Fed going forward.<\/p>","protected":false},"excerpt":{"rendered":"

    Er QE som \u00f8konomisk stimuli udelukket for Fed fremover? Vil forskr\u00e6kkelsen oven p\u00e5 inflationshoppenes effekt p\u00e5 Feds balance f\u00f8re til skarpere adskillelse mellem finans- og pengepolitik i USA? Pengepolitik afg\u00f8res af centralbankerne. Men centralbankerne p\u00e5virkes af s\u00e5vel politikeres som fag\u00f8konomers diskurs. H\u00e9r har inflationshoppene f\u00f8rt til revurdering af hvad der p\u00e5virker \u00f8konomien, og hvor meget. […]<\/p>\n","protected":false},"author":3,"featured_media":2494,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34],"tags":[],"class_list":["post-2493","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-pengepolitik"],"yoast_head":"\nQE stimuli udelukket for Fed? - Kraft Scharling<\/title>\n<meta name=\"description\" content=\"\u00d8konomer mener, at QE kun m\u00e5 ske, n\u00e5r finansiel stabilitet er i fare. 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