June 10, 2024

Secrets of the Federal Reserve’s Unconventional Monetary Policy | William English, former Director of Division of Monetary Affairs for the Fed Board of Governors, on Quantitative Easing (QE) and Forward Guidance

1 hour 25 minutes

Forward Guidance is sponsored by VanEck. Learn more about the VanEck Morningstar Wide MOAT ETF (MOAT) at https://vaneck.com/MOATFG.

William English’s work at the Yale Program on Financial Stability: https://som.yale.edu/faculty-research/faculty-directory/william-b-english

William English’s co-authored new book, “Monetary Policy Responses to Post-Pandemic Inflation”: https://cepr.org/about/news/press-release-new-cepr-ebook-monetary-policy-responses-post-pandemic-inflation

William English’s co-authored Chapter on the Fed’s Balance Sheet: https://www.elgaronline.com/edcollchap/book/9781800375321/book-part-9781800375321-7.xml

William English’s 2012 paper on the rationale and effects of QE: https://www.federalreserve.gov/econres/feds/the-federal-reserve39s-large-scale-asset-purchase-programs-rationale-and-effects.htm

“Interest Rate Risk and Bank Equity Valuations”: https://www.federalreserve.gov/econres/feds/interest-rate-risks-and-bank-equity-valuations.htm

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Timestamps:

(00:00) Introduction

(01:31) Fiscal Policy & Monetary Policy Never Really Were Separated. But It Would Nice If They Were

(03:49) Do High Interest Rates Dissuade Government Borrowing?

(07:09) The Fed Doesn't Like To Discuss Fiscal Policy

(09:53) The Fed's Balance Sheet Expansion of 2020 & 2021

(13:57) The Effects of Quantitative Easing (QE), In Theory And Practice

(18:59) I Don't Remember Us (The Fed) Thinking A Lot About Negative Interest Rate Policy (NIRP)

(23:41) VanEck Ad

(24:22) The October 2008 Decision To Allow The Fed To Pay Interest On Reserves Assisted the Implementation of Quantitative Easing (QE), Which Began ~1 Month Later

(29:15) The Striking Thing About The Asset Purchases Was The Size

(32:32) Forward Guidance vs. QE: Which Is More Powerful, And Which Has More Knock-on Effects?

(36:27) Forward Guidance Is More Powerful When Initial Market Expectations About Future Policy Rates Are Incorrect

(44:37) Flexible Average Inflation Targeting (FAIT) Framework Adopted By The Fed In 2020

(52:48) Fast QE & Slow QT = Secular Rise In Size of Fed Balance Sheet

(57:27) Fed's Decision To Slow Pace of QT Was Due To Desire To Avoid a "Snafu" In Money Markets Such As In September 2019

(01:02:36) The Bernanke Doctrine: Should Interest Rate Policy & Balance Sheet Policy Always Be Pointed In The Same Direction?

(01:07:12) If Balance Sheet Policy Is Moving The Opposite Direction Of Interest Rate Policy, Does That Weaken The Signaling Impact Of Balance Sheet Policy?

(01:11:50) Lowest Comfortable Level of Reserves (LCLoR)

(01:19:34) Impact Of Interest Rate Movements On Bank Equity Valuations

Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.

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