Fed Follies?

Has the Fed lost its way?

The Federal Reserve System celebrates its 100th birthday this year. Rather than hold a self-congratulatory party, the Philadelphia Fed convened a policy forum that looked at current policy in an historical context, asking what the Fed is doing wrong and whether it is straying from established principles of sound central banking.

While there was some criticism of the Fed’s role in the Financial Crisis and evocations of Walter Bagehot, the focus was more on what the Fed is doing now—particularly on Quantitative Easing and asset purchases. While QE1 succeeded in shoring up the economy, it’s unclear whether QE2 and QE3 have accomplished much beyond expanding the Fed’s balance sheet. Inflation seems tame, but a review of the ‘60s and ‘70s is cautionary: in 1970 inflation appeared low and the Fed became highly stimulative—just on the eve double-digit price rises.

Going forward, the Fed is likely to reduce its asset purchases and rely more on forward-looking communications. But transparency is not a panacea: economic conditions are bound to be more complex than we think, and too-frequent communication and revision can confuse rather than clarify.

As long as we use money, monetary policy will be controversial. Serious self-criticism is a hopeful sign that we won’t simply repeat the mistakes of the past.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2013-12-11T11:59:11+00:00 December 11th, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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