Tags: St. Louis Fed | quantitative easing | Economy | rate

St. Louis Fed Official: No Evidence QE Boosted Economy

St. Louis Fed Official: No Evidence QE Boosted Economy

Friday, 21 August 2015 01:43 PM

A U.S. Federal Reserve official has questioned the effectiveness of the central bank’s post-crisis monetary policies, saying they have done little to stimulate the economy.

The vice president of the St. Louis Federal Reserve says the practice of quantitative easing is "not well-developed" and generate results that are "mixed" at best.

In a white paper dissecting the U.S. central bank's actions to stem the financial crisis in 2008 and 2009, Stephen D. Williamson, vice president of the St. Louis Fed, finds fault with three key policy tenets, CNBC reported.

Specifically, he believes the zero interest rates in place since 2008 that were designed to spark good inflation actually have resulted in just the opposite. And he believes the "forward guidance" the Fed has used to communicate its intentions has instead been a muddle of broken vows that has served only to confuse investors. Finally, he asserts that quantitative easing, or the monthly debt purchases that swelled the central bank's balance sheet past the $4.5 trillion mark, have at best a tenuous link to actual economic improvements.

"There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed — inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation," Williamson wrote.

"For example, in spite of massive central bank asset purchases in the U.S., the Fed is currently falling short of its 2 percent inflation target," he added. "Further, Switzerland and Japan, which have balance sheets that are much larger than that of the U.S., relative to GDP, have been experiencing very low inflation or deflation."

Williamson is quick to acknowledge that then-Chairman Ben Bernanke's Fed, through liquidity programs like the Term Auction Facility that injected cash into banks, "helped to assure that the Fed's Great Depression errors were not repeated."

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A U.S. Federal Reserve official has questioned the effectiveness of the central bank's post-crisis monetary policies, saying they have done little to stimulate the economy.
St. Louis Fed, quantitative easing, Economy, rate
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2015-43-21
Friday, 21 August 2015 01:43 PM
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