Morning Must-Read: David Beckworth: Ad Hoc Monetary Policy

David Beckworth: Ad Hoc Monetary Policy: “One of the defining features of U.S. monetary policy over the past five years has been its incredibly ad hoc nature…

QE1, QE2, Operation Twist, QE3, and the Evans Rule…. This stop-go approach to monetary policy was politically costly and prevented the Fed from fully utilizing its ability to manage expectations of future nominal growth… the Fed failed to clearly spell out how it would systematically respond to differing states of the future economy…. Now imagine the Fed’s monetary stimulus programs during this time had be done in a more systematic and predictable manner… assume the Fed had announced a NGDP level target from the start and said asset purchases will continue until a certain level target was hit…. FOMC meetings would have been more predictable and consequently less important. We would not be hanging on the every word of our Fed chairs. Fed watchers and bloggers would be far fewer. It is true that implementing something like a NGDP level target would have used up a lot of the Fed’s political capital…. My reply is that it may have politically cheaper for the Fed to do a NGDP level target than it was to do all the impromptu programs it adopted over the past five years…