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March 31, 2015

How Long Should QE3 Last?

The Federal Reserve’s third quantitative easing program is, as was widely lauded at its inception, an open-ended program, prompting Fed policymakers to provide different parameters for when that program should end, according to Reuters.

“Under the proposal unveiled by Boston Fed President Eric Rosengren, who is one of 19 Fed policymakers, the U.S. central bank’s large-scale asset purchases would continue as long as inflation expectations remained subdued and they would not necessarily stop once the 7.25-percent jobless threshold was crossed… Wading deeper into the debate over what parameters the central bank should use for maintaining its ultra-easy monetary policy, Rosengren said he would like the Fed to keep interest rates near zero until the jobless rate falls as low as 6.5 percent.”

“According to the minutes of the last two policy meetings, the Fed appears to be moving closer to setting formal markers, such as inflation and unemployment, that would cause it to reverse the aggressive efforts to boost the U.S. economy… The Minneapolis Fed’s Narayana Kocherlakota said he would tolerate inflation as high as 2.25 percent until the jobless rate is 5.5 percent. John Williams of the San Francisco Fed says he is OK with 2.5 percent inflation and fingered unemployment ‘somewhat below’ 7 percent. The Chicago Fed’s Charles Evans – the first to pitch such a plan – also targets 7 percent joblessness and would allow inflation to rise as much as 3 percent.”

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