"Quantitative Tightening Is Not Quantitative Tightening" Says St. Louis Fed


St. Louis Fed president James Bullard discusses Quantitative Tightening (QT). As usual, he makes little sense.

James Bullard explains: When Quantitative Tightening Is Not Quantitative Tightening.

The actual effects of QE appear to be far from neutral. There are many ideas about why this may be so. One leading candidate theory is that QE did not have direct effects but did send a credible signal about how long the FOMC intended to keep the policy rate near zero.

The signaling argument seems to work reasonably well if the policy rate is near zero. In that situation, the FOMC may wish to signal convincingly that it will keep the policy rate near zero “for longer”—i.e., beyond the time that an ordinary approach to monetary policy would call for rising rates. QE may have been a good approach to accomplish this objective.

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The figure illustrates the effect of QE announcements on forward rates. A sizable part of the effect is due to expectations for future policy. Imposing no-arbitrage restrictions (right panel) delivers more precise estimates.

Asymmetric Effects

With the policy rate near zero, the effects of QE may have been substantial due to signaling effects.

Now, with the policy rate well above zero, any signaling effects from balance sheet changes have dissipated.

This means balance sheet shrinkage—“QT”—does not have equal and opposite effects from QE. Indeed, one may view the effects of unwinding the balance sheet as relatively minor.

Making Stuff Up As We Go Along

Supposedly QE had no direct effect. Rather it had an indirect one. This is the hindsight given today.

The next time, when something different happens, the Fed will give different hindsight, always with the implied message it did the right thing.

Questions for Bullard

  1. Why didn't QE work very well for the EU? Japan?
  2. Was the goal of QE to raise inflation as the BLS measures it, or raise asset prices and create bubbles?
  3. If QT doesn't matter, then why the hell did the Fed abandon it, a week or so after announcing QT was on auto-pilot?
  4. If it doesn't matter, why not just undo all of it right now?

Of Ivory Towers and Wizards

In regards to question number two, the Fed surely succeeded at blowing bubbles.

These wizards sit in their ivory tower group-think boxes and spout complete nonsense about the Phillips Curve, inflation expectations and the meaning of inflation itself while ignoring the massive bubbles they blow while doing so.

Stupidity Well-Anchored

Two days ago NY Fed President John Williams reiterated complete nonsense on the Phillips Curve and inflation expectations.

Bullard offered further evidence that Economic Stupidity and Fed Groupthink Remain "Well-Anchored"

Mike "Mish" Shedlock

Comments (15)
No. 1-9

I think that part of the answer is that the free market is remarkably resilient. I found myself wondering why the Fed actions did so little, and now I find myself wondering why the tariff idiocy has done so little, and in the end, what I come back to is that the economy is resilient, and adjusts for whatever silliness the Fed and/or Government are up to. That's not to say that government action never has an impact, just that it tends to be smaller than expected, and tends to creep in over a longer period of time than you would expect.


#5. The fake obama "recovery" displayed in a single chart. $5 trillion of "created from nothing" funds pumped into the economy + bailouts + zero interest rates.

And we wonder why we have the massive bubbles and distortions in the economy today.


The US Fed has given in to “markets” which have clearly explained that they do not want the punch bowl taken away. This will give the signal to other central banks around the world to lower interest rates and keep the party going. I have mentioned before that one of the reasons that I expect a mere slowdown and not a recession is because “markets” and central banks do not want one, and will respond accordingly. In addition, if that isn’t enough, then I expect several governments to provide various other stimulus measures as well.


"As usual, he makes little sense." Yep! But market loves him after all he is as dovish as one can get!

Bullard – “Rate hikes, balance sheet reduction ‘coming to an end'”

“I think we’re in a good place today,” he said. “We had a lot of success. People said it couldn’t be done.”

Arsonist at the Fed taking credit (for a job not yet done -- given the high debt and frothy markets and the scampering at the Fed if the markets sneezes). Moreover the Great Recession happened because of the Fed.

Strutting about! Why do we put up with him and his ilk?


One will never find real evidence of "direct" effects QE, or QT, or any other central bank action, when one refuses to look at details beyond the most degenerate of macro levels.

Printing money doesn't create anything real. Nor destroy it. All it does is redistribute that which is already there. So, yes, if one insists on putting on blinders and look at everything from nothing but a sufficiently degenerate macro point of view, both QE and QT can be construed to have "no effect."

Which is about as relevant as Krugman's (and others', both mindless groupies and ostensibly less mindless ones....) assertion that "debt doesn't matter, since it's money we owe to ourselves." So, it makes absolutely no difference whether everyone in America is 100% debt free; or if absolutely everyone, along with all their kids and all their descendants, for all of posterity, will remain indentured debt slaves to Lloyd Blankfein. Hey, it doesn't make any difference at all, since it's just money "we" owe to "ourselves..."

Which, again, makes about as much as sense as insisting that nuking Manhattan doesn't really make any difference either, energy in the universe being conserved and all........


Fed Stratagy: Say it over and over again, "TINA is normal". Eventually, it will sink in.


Let the good times roll.


"St. Louis Fed president James Bullard discusses Quantitative Tightening (QT). As usual, he makes little sense."

Bullard manipulated the stock market in 2014, saying that QE shouldn't end, to goose the market to a new all time high during a serious decline. When QE ended and Japan took over, Bullard then said QE should end and that his previous remarks were misunderstood.

There is no reason to take Bullard's comments seriously.


"The next time, when something different happens, the Fed will give different hindsight, always with the implied message it did the right thing."

Zero Hedge headline: Bernanke Killed The World Economy, New Academic Study Confirms

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