The Purge Of QE

As I wondered yesterday, what good would opening up the Federal Reserve do for us? What you would find is already out on the table. We would be treated to hidden insight that already exists in public, such as that delivered by FRBSF President (and CEO) John Williams just today (thanks to T. Tateo for pointing it out). He pronounced the Fed an “amazingly nerdy group of people who pore over data, computer models, and statistical analysis.” There is, of course, absolutely nothing wrong with that, except in the case where that is all you are, and doing only that leads nowhere good.

So the point of Williams speech was to try to claim that being this way has led to good things, presumably for more than just nerds and statistical obsessives.

Like you, I’ve attended many gatherings such as this in the years since the onset of the Great Recession. Sometime after the coffee is poured and the conversation begins, it invariably turns to where things stand with the recovery. Today, I’d like to propose we do something a little different…

With an economy at full employment, inflation nearing the Fed’s 2 percent goal, and the expansion now in its eighth year, the data have spoken and the message is clear: We’ve largely attained the hard-sought recovery we’ve been after for the past nine years.

What he says is technically true; the Fed has achieved a recovery according to its own definitions. They see cyclicality through the output gap exclusively, so if their output gap is closed then recovery can be righteously declared. Where it becomes so contentious is in the words “we’ve been after for the past nine years.”

Again, if you define recovery solely through the output gap, William’s statement is precisely true. But go back and review anything over the past nine years and you will fail to find any pronouncements from the Fed nerds and their models that describes the world we have now – and Williams knows it. Almost immediately after stating what I quoted above, he delivers the grand contradiction of this “recovery.”

1 2 3 4
View single page >> |

Disclosure: This material has been distributed fo or informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.