Federal Reserve: “Extended Insurance”

According to the “outlook”, interest rates are likely to remain down into 2016 because inflation will likely still be below the Fed´s target.


The Fed would always say, about its securities purchases:

Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

As the chart shows (weekly data) that never happened:


And that´s (according to Scott Sumner) “A classic example of how interest rates tell us very little about the stance of monetary policy.”

The stock market has mostly been on an uptrend:


And as David Beckworth illustrates, the QE + Forward Guidance group has performed significantly better than the Euro group (and better the more QE+FG):


Just imagine if the Fed had been clear on its communications, something it could have accomplished by stating a level target for NGDP!

About the Author

Marcus Nunes
João Marcus Marinho Nunes is a partner of Phynance Estratégias Quantitativas e Investimentos and a professor of Economics at Fundação Getúlio Vargas in São Paulo, Brazil. He also blogs here: http://thefaintofheart.wordpress.com/

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