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

Jun 10, 2024

Former Director of Division of Monetary Affairs for the Fed Board of Governors, William English, discusses the fiscal implications of low interest rates post-pandemic, the impact of interest rates on fiscal decisions, the Fed's unconventional monetary policy tools like QE, and the challenges of managing the Fed's balance sheet strategy.

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Intro

00:00 • 4min

Impact of Interest Rates on Fiscal Situation and Central Bank Policy

03:50 • 20min

Discussion on the Federal Reserve's Quantitative Easing and Interest Rate Control Mechanisms

23:43 • 4min

Effectiveness and Challenges of Quantitative Easing and Forward Guidance

27:54 • 25min

Federal Reserve's Balance Sheet Strategy

52:52 • 18min

The Importance of the Lowest Comfortable Level of Reserves in the Federal Reserve

01:11:20 • 8min

Analyzing Banks' Reactions to Interest Rate Rises and Excessive Risk-Taking

01:19:35 • 5min

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.