MNI BRIEF: Fed Needs To Consider QE Agility In Review - Daly
MNI (WASHINGTON) - Recent experience with balance sheet policy suggests that the Fed may want to consider in its upcoming framework review how its policy rate, forward guidance, and quantitative easing are linked, San Francisco Fed President Mary Daly said Tuesday.
"I personally felt like we were too tied up between balance sheet policy and being able to raise the interest rate," she said about events earlier during the pandemic when the central bank first started raising interest rates. "In November of 2021 we signaled that we were going to start tapering our purchases faster, but ultimately might have wanted to start raising rates earlier than in March. Now, a lot of that was done just through communication, but there was a sense where we couldn't do that as long as we were tapering purchases."
Daly likened the central bank's ability to make adjustments to its policy rate to a speed boat and the balance sheet to a tanker ship. "The question is: Do you want your main policy tool to wait on the tanker ship to turn in order for it to turn? And I think that's something we do have to take up in the framework review," she said in Q&A at a New York University event. The San Francisco Fed chief is looking forward to seeing academic and Fed research about "whether we need to link those two together always, or if communication can solve that problem."