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John C. Williams
After the federal funds rate target was lowered to near zero in 2008, the Federal Reserve has used two types of unconventional monetary policies to stimulate the U.S. economy: forward policy guidance and large-scale asset purchases. These tools have been effective in pushing down longer-term Treasury yields and boosting other asset prices, thereby lifting spending and the economy. The following is adapted from a presentation by the president and CEO of the Federal Reserve Bank of San Francisco at the University of California, Irvine, on November 5, 2012.
The subject of my talk is the unconventional monetary policies pursued by the Federal Reserve over the past four years. In my time today, I’ll cover three big questions. First, why has the Fed turned to unconventional monetary policies? Second, what effects are these policies having on the economy? And, third, what potential risks do they pose?
[size=1.3em]The limits of conventional monetary policy
Let me start with the first question, why unconventional monetary policy? Back in late 2008, our country was facing the worst financial crisis and recession since the Great Depression. Real gross domestic product, the broadest measure of how much we produce as a nation, plummeted at an annual rate of 8.9% in the fourth quarter of 2008. The economy was in free fall and the unemployment rate was soaring. In response, in December 2008, the Fed’s monetary policy body, the Federal Open Market Committee, or FOMC, cut the target federal funds rate—our conventional instrument of monetary policy—essentially to zero.
The federal funds rate is the short-term interest rate that is normally the FOMC’s primary lever used to influence the economy and inflation. When we want to stimulate the economy, we lower the target fed funds rate. This causes other interest rates—like rates on car loans and mortgages—to decline. And it boosts the value of the stock market as investors equalize risk-adjusted returns across their portfolios. In response to lower borrowing costs and the resulting improvement in financial conditions, households and businesses are more willing to spend, creating greater demand for goods and services. This increase in demand in turn causes businesses to increase production and hire more workers. When we want to slow the economy so it doesn’t overheat and create inflationary pressures, we raise the fed funds rate and everything works in the opposite direction. That’s conventional monetary policy in a nutshell.
Given the economy’s dire straits during the recession, standard rules of thumb for monetary policy suggested that the funds rate should be cut to well below zero (see Rudebusch 2009 and Chung et al. 2012). But that was impossible. Why can’t interest rates be pushed well below zero? Well, one simple reason is that currency—the cash in your wallet—pays no interest. Think about it. If bank accounts paid negative interest—that is, if people were charged to keep their money in a bank—then depositors could take money out of their accounts and keep it as hard cash. That would save them the interest expense. Economists refer to this floor on interest rates as the zero lower bound.
Meanwhile, the economic outlook was grim. So, given the inability to cut interest rates well below zero, we began to explore alternative ways to ease credit conditions and thereby stimulate the economy. We also had an eye on inflation, which was heading lower, thereby creating a situation in which deflation might be a threat. I will focus specifically on two types of unconventional monetary policies that the Fed and other central banks put in place around that time. The first is what we at the Fed call forward policy guidance. The second is what we call large-scale asset purchases, but which are popularly known as quantitative easing, or QE.
[size=1.3em]Forward policy guidance
The first type of unconventional monetary policy that I will discuss is forward policy guidance. Let me start with some background. After each monetary policy meeting, the FOMC releases a statement describing the state of the economy and the reasons for our policy decision about our target for the federal funds rate (see Williams 2012b for a description of monetary policy statement evolution over the past two decades). In addition, the statement often contains language discussing economic risks and where the FOMC thinks monetary policy may be headed (see Rudebusch and Williams 2008). It’s interesting to note that the statement language typically has bigger effects on financial conditions than the federal funds rate decision itself (see Gürkaynak, Sack, and Swanson 2005). That’s not that surprising. After all, the current level of the federal funds rate only tells what the overnight interest rate is right now. But the FOMC’s statement language hints at where those short-term rates are likely to be in the future. That’s much more relevant information for households, businesses, and investors. They are typically borrowing for expenditures such as cars, homes, or business capital spending, which are generally financed over a longer term.
Although the FOMC has used versions of forward guidance at various times in the past, the use of the policy statement to provide more explicit information about future policy took a quantum leap forward in the summer of 2011. With the fed funds rate stuck near zero, forward guidance provided a tool to influence longer-term interest rates and financial market conditions. Forward guidance achieves its effects by influencing market expectations for the future path of interest rates. Let me give a concrete example. Around the middle of 2011, private-sector economists expected that the FOMC would start raising the fed funds rate in about nine months to a year, according to surveys of professional forecasters and financial market indicators (see Swanson and Williams 2012).
The introduction of forward guidance in the August 2011 FOMC statement succeeded in shifting market expectations regarding the future path of the federal funds rate. Specifically, the FOMC stated that it “anticipates that economic conditions…are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.” That statement communicated that the FOMC would probably keep the fed funds rate near zero for at least two more years, longer than many private-sector economists had been thinking. As a result of this shift in expectations, yields on Treasury securities fell by between one- and two-tenths of a percentage point. This may not sound like a big change. But in terms of the effects of monetary policy, those were actually big drops. In fact, this was about as big a fall in interest rates as would normally come from cutting the federal funds rate by three-quarters or even a full percentage point (see Gürkaynak, Sack, and Swanson 2005 and Chung et al. 2012). And, the ripple effect through financial markets lowered the cost of credit for all kinds of borrowers, not just the U.S. Treasury.
The use of forward policy guidance has now become a key monetary policy tool. Since August 2011, the FOMC has extended forward guidance twice. In January 2012, the FOMC said it would keep the fed funds rate exceptionally low “at least through late 2014.” Just this September, it extended its guidance further, “at least through mid-2015.” The FOMC also said it would maintain low rates “for a considerable time after the economic recovery strengthens.” In other words, it indicated it intends to keep short-term rates low even as the economy improves to make sure this recovery takes hold. I should note that the Fed is not alone in using forward guidance. Other central banks provide forward policy guidance in a variety of ways.
Although forward policy guidance has proven to be a very useful policy tool, it’s not a perfect substitute for the kind of monetary stimulus that comes from lower interest rates. One issue is that, for the forward guidance policy to work as desired, the public has to believe that the FOMC will really carry out the policy as it says it will. But, the Fed doesn’t have the ability to tie its hands that way. This point was made by Finn Kydland and Edward Prescott in the late 1970s. Let me explain. For forward policy guidance to have its maximum effect, the Fed must commit to keeping the short-term policy rate lower than it otherwise would to compensate for the fact that the short-term interest rate cannot be lowered today. But when the time comes to carry out the commitment made in its forward guidance, it may no longer want to do so. For instance, it might be hard to resist raising rates earlier than promised to head off an increase in inflation (see Adam and Billi 2007). So, even when central bankers say they will keep rates unusually low for a set time, the public may worry that the central bank will raise rates earlier to fight budding inflation pressures (Evans 2010 is an exception; see Walsh 2009 for discussion).
Another challenge for forward guidance is that the public may have different expectations about the future of the economy and monetary policy than the central bank. Expectations are crucial for forward guidance to be effective. If the public doesn’t understand the central bank’s intended policy path, then forward guidance may not work so well (see Reifschneider and Roberts 2006 and Williams 2006). Therefore, clear communication of policy to the public is a key challenge. This isn’t always easy. The public and the media tend to gloss over the nuances of policy and take away simple sound bites.
原文链接：https://www.frbsf.org/economic-research/publications/economic-letter/2012/november/federal-reserve-unconventional-policies/
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