Summary: I believe policy makers at the the Federal Reserve have soured on the marginal effectiveness of quantitative easing as a primary tool for monetary policy. As interest rate policy is still not effective with the policy rate at zero, forward guidance will take on a more central role as the Fed tries to bring interest rate policy back to the fore. If sucessful, the Fed will begin to assert more dominant control over long-term interest rates.
When the financial crisis hit in earnest in 2007, the Federal Reserve began slashing the Fed Funds rate drastically. The Fed took the rate from 5.25% in August 2007 to 0% in December 2008, a reduction of 5.25% in 16 months. This was an unprecedented level of monetary easing. Yet, the economy was still...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.