SF Fed’s John Williams Gets It on Monetary Policy

The problem with quantitative easing isn’t the easing, it’s the quantitative. In other words, the problem is that the Federal Reserve has conducted its asset purchase programs by saying how much money it wants to spend rather than saying what it wants to achieve. But since the Federal Reserve isn’t an investor trying to make money, but rather a policy-making institution trying to achieve some policy goals, it needs to articulate those goals.

That’s why it’s exciting to read San Francisco Federal Reserve President John Williams calling for what’s being termed “open-ended QE.”


We should probably just retire the term “QE” at this point. What he’s talking about is going back to doing asset purchases, but doing them in potentially unlimited quantities in order to meet a goal. You say, for example, “we’re going to spend BLAH BLAH a week to try to get inflation expectations up to YADDA YADDA and if after five weeks we’re not there yet we’re going to start spending DOUBLE BLAH BLAH.” This is not my idea of what an asbolutely optimal policy agenda looks like, but it would work much better than trying to decide how much to buy in advance. What you want to do, after all, is move markets and coordinate expectations. If everyone who pays attention to these things knows where the captain is trying to steer the ship, then they’ll all adjust their behavior in the direction of the new point that the Fed is trying to coordinate towards. If it’s all done through rumors, signaling, and off-the-record chats with key reporters then it’s much harder.