San Francisco’s Federal Reserve President, John Williams, recently authored a new paper that expressed doubts as to the sensibility of retaining the bond buying program — pointing to low short-term interest rates as evidence, and noting that economically the U.S. is still in need of help, reports the Wall Street Journal. Williams is echoing sentiments also expressed by Dallas Federal Reserve President Richard Fisher, who said he would like to see a more accelerated taper than the $10 billion reduction of the $85 billion stimulus program.
“I don’t think these are programs that should be continued, and I worry about the fact that we’ve already painted ourselves into a corner,” he said. “I would have argued for $20 billion” in quantitative easing cuts, said Fisher.
Williams paper examines the strategy as a whole, saying that quantitative easing has been “proven a potent but blunt tool, with uncertain effects on financial markets and the economy” — according to the Wall Street Journal. The desired effects were that long-term interest rates would drop and other economic factors would improve, but William’s points out that actual results aren’t always easy to predict. “Estimating the effects of large-scale asset purchases on the economy — as opposed to financial markets — is inherently much harder to do and is subject to greater uncertainty,” said Williams.
“Should large-scale asset purchases be a standard tool of monetary policy [with low to zero interest rates] and, if so, how should they be implemented?” wrote Williams. “Experience has shown that it is impossible to convey the full reach of factors that influence the future course of policy,” said Williams according to the Wall Street Journal, and that, “As a result, forward guidance ends up being overly simplified and prone to misinterpretation.”
Others in the Fed are not so negative in regards to the stimulus program. Fed President Dennis Lockhart is in favor of a slow and steady favor, but insists that the Fed needs to be “very accommodative” in terms of its policy, responding appropriately to the market as it changes, adjusting the taper accordingly.