The Federal Reserve is Not Ending Its Stimulus




This is utterly wrong.




P.P.S. I wrote about this last year during the tapering debate. In the lingo of that post, the Fed is moving from quantitative easing to quantitative accommodation. To actually eliminate the stimulus, the Fed would have to move on to quantitative tightening.

One thought on “The Federal Reserve is Not Ending Its Stimulus”

  1. Perhaps it also matters where one thinks the demand for dollars is. Consider the economy like a balloon: As you pour in dollars, you can get gentle overall expansion (sort of the mythical trickle-down), expansion in places (asset bubbles, overproduction) or holes where things leak out (unused dollars all over the floor – or on balance sheets of companies, China, etc.). If dollars going in are not being utilized, they are just creating an overhang rather than expansion, regardless of whether you believe in flow or stock. I wonder whether it is more that until the economy expands to the point that dollars are being invested (or misinvested), the exact Fed levels are less relevant than the fact that they are in excess…

    Curiously, this leads to interesting thoughts about the role of inflation: With low inflation, there is less pressure to invest excess dollars, but if inflation ticks up, it would create high pressure to invest in order to avoid loss of value, likely leading to big bubbles.

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