…and learning from it for better anticipations.
Federal Reserve officials grappling with the legacy of expansive stimulus would find it difficult to return to the central bank’s precrisis role on the sidelines of financial markets, analysts and central-bank watchers say.
Well, NSS. Frankly, these worthies should have known the outcomes likely from their intervention before they intervened.
Aside from the magnitude of the necessary rollback and its attendant difficulty—the Fed’s balance sheet has expanded four and a half times, from $1 trillion to $4.5 trillion since right before the Panic of 2008—there’s the human engineering aspect of personal political power:
The Fed has become “like an octopus,” said Jeffrey Cleveland, chief economist at Payden & Rygel, a Los Angeles money manager. “Once you get the power and you are influencing all these markets, do you really want to retreat from all that?”
New York Fed President William Dudley told an audience this month the portfolio isn’t likely to return to its precrisis size. Federal Reserve Bank of San Francisco President John Williams said this month the portfolio would be “significantly smaller” than it is today, but likely above $2 trillion in assets.
Still twice the original size of the Fed’s balance sheet. Oops.
Now the rationalization, summarized in the subheadline of the article at the link:
Pulling out of newest central-bank innovations risks market disruptions
A definite possibility, but there’s not much concern for the underlying economy in that remark. And the economy is what’s important.
We’ll see whether these guys are worth their taxpayer-funded paychecks by how well they learn from hindsight and their mistake. It doesn’t look promising.