Fed President Drops A Bombshell Yesterday: Fed Removed QE3 Too Soon

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By Pam Martens and Russ Martens: February 4, 2015

The monetary policy arm of the U.S. central bank, the Federal Open Market Committee (FOMC), is getting hammered this week. On Monday, two researchers at the Federal Reserve Bank of San Francisco chastised the FOMC for effectively wearing rose-colored glasses since 2007 and getting the rate of economic growth mostly dead wrong. (More on that later in this article.)

Yesterday, in a speech before the Minnesota Bankers Association, Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis said that if one applied a corporate performance measurement to the FOMC’s dual job assignment from Congress of promoting price stability and maximum employment, then the FOMC has “underperformed in the past three years” on both measures.

The reason the FOMC has underperformed according to Kocherlakota is that it did not provide adequate stimulus. The Fed President told the audience:

“What concrete actions could the FOMC have taken to provide additional stimulus? I think one concrete action would have been not to reduce stimulus. In mid-2013, the FOMC began communicating about the eventual elimination of its asset purchase program that took place from December 2013 and October 2014. These communications, and the follow-up actions, served as a tightening of monetary policy. Accordingly, they were associated with sharp increases in market interest rates and sharp reductions in the rate of home mortgage refinancing.”

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