More QE for the US? Dissension at the Fed.
Posted on 29 June 2010
Reading the speech by Fed Board member Kevin Warsh (here) at face value – seems like at least his preference is not to head down this route again…
Still, if federal fiscal policy is approaching its political or economic limits, some believe that the Federal Reserve should do more, including expansion of its balance sheet.
In my view, any judgment to expand the balance sheet further should be subject to strict scrutiny. I would want to be convinced that the incremental macroeconomic benefits outweighed any costs owing to erosion of market functioning, perceptions of monetizing indebtedness, crowding-out of private buyers, or loss of central bank credibility. The Fed’s institutional credibility is its most valuable asset, far more consequential to macroeconomic performance than its holdings of long-term Treasury securities or agency securities. That credibility could be meaningfully undermined if we were to take actions that were unlikely to yield clear and significant benefits.
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Glad to hear there’s at least some resistance forming to B-52 Ben’s preferred method of ‘fixing’ things.