John Williams understands the Chuck Norris effect

Here is ft.com quoting John Williams president of the Federal Reserve Bank of San Francisco:

“If the Fed launched another round of quantitative easing, Mr Williams suggested that buying mortgage-backed securities rather than Treasuries would have a stronger effect on financial conditions. “There’s a lot more you can buy without interfering with market function and you maybe get a little more bang for the buck,” he said.

He added that there would also be benefits in having an open-ended programme of QE, where the ultimate amount of purchases was not fixed in advance like the $600bn “QE2” programme launched in November 2010 but rather adjusted according to economic conditions.

“The main benefit from my point of view is it will get the markets to stop focusing on the terminal date [when a programme of purchases ends] and also focusing on, ‘Oh, are they going to do QE3?’” he said. Instead, markets would adjust their expectation of Fed purchases as economic conditions changed.”

Williams is talking about open-ended QE. This is exactly what Market Monetarists have been recommending. The Fed needs to focus on the target and  not on how much QE to do to achieve a given target. Let the market do the lifting – we call it the Chuck Norris effect!
HT Matt O’Brien
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7 Comments

  1. Lars, Note that he didn´t specify a target. An improvement, surely, but still lacking in content.

    Reply
  2. Don’t they already have the chuck norris effect going on toward the disinflation side though? I doubt they will be believed that any QE will get anywhere right after telling everyone 2% is their target, like it or get a karate chop in the face.

    Reply
  3. Benjamin Cole

     /  July 25, 2012

    Nice blogging.

    The Fed needs credibility—not just that it will contain inflation in reasonable limits, but that it will spark economic growth.

    If Bernanke turns pansy every time inflation hits 2 percent….the market knows that and expects Japanonomics.

    I hope some pundits and bloggers start expressing this theme: The Feds needs credibility as growth spark plug, and it does not have it now.

    Reply
  4. It just doesn’t matter what the doves think. It only matters what the hawks think because they have a veto, and what Ben thinks, because he has one eye on Congress.

    Reply
    • Christopher, that is of course right – this is not going to happen with the present FOMC. It might actually be worse than that – the doves want monetary in the wrong way and for the wrong reasons.

      Reply

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