MONETARY POLICY
Ether George, Kansas City Fed President is a QE dissident not because it
FX
isn’t necessary, but
because it hasn’t worked and the Fed is courting unintended consequences by pursuing further QE.
down the road are higher and higher for every billion of Treasuries or MBS bought while the positive effect on the real economy maybe there (we will never have the evidence of what would have happened without QE) but it is more and more difficult to single out.
However the men in charge, Bernanke with Yellen and Dudley
next to
him, are pretty convinced that any slowdown of the economy has to be helped out from more asset purchases. Part of it, oſten unsaid, is due to the terrible mess in Washington, particularly evident as I write. When the fiscal side cannot react then the monetary authority has to do all the
liſting. Still they do not look scared from the potential consequences. And there are many FOMC members backing them. Listen here. Evans (Chicago Fed president) just said that “Fed unable to provide as much stimulus as it would like” and “Fed encouraging additional risk-taking”. Only three months ago actually Bernanke and Evans were telling us how the Fed was worried about “excess froth” in the market. But now more speakers are going the other way. Kocherlakota (Minneapolis Fed president) yesterday said he would be willing to create asset price bubbles in return for an improvement in the employment outlook.
On the other end a few voices keep saying, now louder, that QE brings risk without benefits. Fisher (Dallas) has been in this camp for long now. Te argument raised by Fed hawks goes like this: the policy is doing little for the economy, but instead is pumping up asset bubbles anew. Also Richmond Fed President Lacker had been warning of this threat for some time, but it was Kansas City Fed President George’s dissent at her first meeting in January that really put the story on the front pages. Her view has been consistent all year, and was given additional credibility by the fact that her actual economic view has been soſt. She’s a QE dissident
FX TRADER MAGAZINE October - December 2013 49
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