John Williams understands the Chuck Norris effect
Here is ft.com quoting John Williams president of the Federal Reserve Bank of San Francisco:
"If the Fed launched another round of quantitative easing, Mr Williams suggested that buying mortgage-backed securities rather than Treasuries would have a stronger effect on financial conditions. “There’s a lot more you can buy without interfering with market function and you maybe get a little more bang for the buck,” he said. He added that there would also be benefits in having an open-ended programme of QE, where the ultimate amount of purchases was not fixed in advance like the $600bn “QE2” programme launched in November 2010 but rather adjusted according to economic conditions. “The main benefit from my point of view is it will get the markets to stop focusing on the terminal date [when a programme of purchases ends] and also focusing on, ‘Oh, are they going to do QE3?’” he said. Instead, markets would adjust their expectation of Fed purchases as economic conditions changed."
Williams is talking about open-ended QE. This is exactly what Market Monetarists have been recommending. The Fed needs to focus on the target and not on how much QE to do to achieve a given target. Let the market do the lifting - we call it the Chuck Norris effect!
HT Matt O'Brien