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Good news! The Fed’s moving toward “whatever it takes”

Summary:
I have recently been emphasizing two policy recommendations: 1. Level targeting 2. A “whatever it takes” approach to asset purchases. The second recommendation is that the Fed stand willing to go beyond purchasing just Treasuries and MBSs, although I’m not sure that additional purchases would actually be necessary. Today, the Fed announced some new policies that edge us closer to “whatever it takes”: The Fed announced that it was suspending its previous guidance on quantitative easing, which sought to buy “at least” 0 billion in U.S. Treasuries and 0 billion in agency-backed mortgage-backed securities “over coming months.” The Fed now says it will purchase securities “in the amounts needed,” and will also expand the scope of those purchases to include agency

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I have recently been emphasizing two policy recommendations:

1. Level targeting
2. A “whatever it takes” approach to asset purchases.

The second recommendation is that the Fed stand willing to go beyond purchasing just Treasuries and MBSs, although I’m not sure that additional purchases would actually be necessary.

Today, the Fed announced some new policies that edge us closer to “whatever it takes”:

The Fed announced that it was suspending its previous guidance on quantitative easing, which sought to buy “at least” $500 billion in U.S. Treasuries and $200 billion in agency-backed mortgage-backed securities “over coming months.” The Fed now says it will purchase securities “in the amounts needed,” and will also expand the scope of those purchases to include agency commercial mortgage-backed securities.

The central bank also unveiled a Primary Market Corporate Credit Facility (PMCCF) that would directly purchase eligible corporate bonds from investment grade issuers in addition to a Secondary Market Corporate Credit Facility (SMCCF) that would buy corporate bonds in the secondary market, which could include some eligible investment grade corporate bond exchange-traded funds.

Both programs will last until September 30, 2020.

Excellent work Mr. Powell!

The next step should be for the Fed to make clear that its “in the amounts needed” phrasing refers to bringing the PCE price level back up to a 2% trend line from December 2019, not just stabilizing financial markets.  And add stocks as well.

And the next step (no hurry) should be to switch from price level targeting to NGDP level targeting.

And the final step should be to use market “guardrails” to guide policy.

And then we’re done, and macroeconomics can close up shop.

PS.  I’ll take this as an admission from the Fed that MMs were right and the Fed was wrong during 2009-13 when it failed to so “whatever it takes” QE.

Update:  This headline caught my eye:

Fed’s Bullard: Coronavirus shutdown not a recession but an investment in survival

I’d rather call it a recession.  I’d rather claim that the vast majority of recessions are monetary and a few are caused by real shocks, then to be forced into an argument with RBC-types who say “well of course you don’t believe real shocks can cause recessions, you’ve defined ‘recession’ to exclude real shocks.”

Having said that, I don’t really care what people call it.  It will be obvious to all that it’s an unusual case.

Update #2:  Monday morning Beijing traffic was finally back to normal!.  PM traffic still down a bit.


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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