Will the Fed Withdraw Too Soon?
Posted at 4 p.m. on Feb. 21
The minutes from the Federal Open Market Committee’s January meeting has sparked some hand-wringing from Tim Duy, who is worried that the Federal Reserve’s “commitment to open-ended quantitative easing is more fragile than believed… can it be long before they waver on their commitment to low rates as well?”
“The cost/benefit line is the Fed’s get-out-of-jail-free card; it allows them to unwind QE regardless of the progress in the labor market. And this shows up in the minutes… We should watch upcoming speeches for unequal weight in the benefits vs. costs discussion. If the weight shifts increasingly toward costs, a change may be close at hand.”
“And if they exercise the cost/benefit clause to ignore the job market clause and alter the direction of the large scale asset purchase program, recognize that the Evan’s rule also has its own open-ended clause for the Fed to place imaginary concerns over real outcomes.”