Marshall Auerback — Central Banks Are Trying To Do Too Much, Not Too Little

As the Fed winds down its asset buying program in the form of QE, it is worth considering this recent comment by economist Michael Woodford at the St Louis Fed:

“It’s obviously a very complex situation. In general, I wish the Fed were speaking more about the need for fiscal policy to take on more of the burden of trying to get the economy moving. 

I’m afraid that, to some extent, the Fed’s desire to stress the fact that we still have tools, we haven’t used all of our ammunition, has had unfortunate effects. Of course, the intention of that is to reassure the public. The feeling is that letting people be scared that maybe we’re out of ideas would itself create uncertainty about the future that would be undesirable for the economy. And that’s understandable. 

But I worry that it’s had the undesirable effect of letting Congress off the hook a little too easily by letting them say, “The Fed still has lots of things they can do to take care of the situation, so we can play other games.” 

And I think maybe the Fed would have helped the public debate if it had pushed back a little more on the view that everybody should be assuming the Fed will save everything.”

Classic case of using the wrong tool for the job.

Macrobits by Marshall Auerback
Central Banks Are Trying To Do Too Much, Not Too Little
Marshall Auerback