The Bond Buyer reports Rosengren Expects Fed to Again Resort to Asset Purchases.

Although large scale asset purchase programs may not be as effective as previously believed, Federal Reserve Bank of Boston President Eric Rosengren said Friday, “it is quite likely” that the programs will be needed in the future.

Crisis-Era Failures

The Wall Street Journal reports Fed’s Crisis-Era, Bond-Buying Plan Was Largely Ineffective, Economists Say.

The Federal Reserve’s signature bond buying stimulus program undertaken during and in the wake of the financial crisis was largely a dud for the economy, argues a new paper authored by a group of prominent economists.

The paper, which was to be presented Friday at a conference held in New York by the University of Chicago Booth School of Business, takes aim at the central bank’s controversial purchases of long-term Treasury and mortgage debt.

Given the unorthodox nature of the stimulus, arriving in an economy undergoing huge stress, central bankers and academics have long struggled to understand what the Fed got for a policy that took its portfolio of cash and bonds from a pre-crisis level of just over $800 billion in 2007 to a peak of $4.5 trillion.

“We find that Fed actions and announcements were not a dominant determinant of 10-year yields and that whatever the initial impact of some Fed actions or announcements, the effects tended not to persist,” the paper’s authors wrote. Their findings were based on a study of Fed policy announcements referenced against market reactions.

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William Dudley of the Federal Reserve Bank of New York and Eric Rosengren of the Federal Reserve Bank of Boston both said on a panel discussing the paper’s findings that they agree it’s hard to understand the exact impact of the bond buying. But they said there’s nevertheless evidence the effort was helpful, and that the strategy should remain a part of the Fed’s policy toolkit going forward.

Mr. Rosengren agreed and said bond buying is important as a “last resort” when short-term rates can be cut no further. He added there’s a good chance the Fed will again have to use asset buying should another recession arise.

Ready and Willing

The Fed does not understand the impact, and Rosengren outright admits QE was not as effective as they thought. Yet he fully expects it will be used again.

So do I. It's a given.

The only thing the Fed knows how to do is blow bubbles. They remain clueless how destructive bubbles are. The last three rounds of QE stimulated stocks. Will the next one?

I suggest it will stimulate gold.

Mike "Mish" Shedlock

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