Counterfactuals?
Science?
From FT Alphaville:
The Fed’s balance sheet is no longer in expansion mode, which means it’s time for post-mortems of the most recent asset purchase programme. (Our colleague John Authers has a very good round-up of what did and didn’t happen since QE3 began.)
We want to focus on the fact that the most recent round of bond-buying seemed to have no inflationary impact. If anything, an observer of the data who had no preconceptions about monetary policy operations would conclude that QE3 was disinflationary. Alphaville writers have been exploring this possibility for years (though without firm conclusions).
Let’s start by looking at the changes in actual inflation since the start of 2010.
Inflation was slowing dramatically in the period before QE2. Between January, 2010 and Bernanke’s teaser speech at Jackson Hole at the end of August, annual inflation measured by changes in the consumer price index had slowed by 1.4 percentage points, while the annual growth rate of the personal consumption expenditure deflator had decelerated by about 0.8 percentage points. Even price indices that excluded food and energy were slowing sharply.
Inflation continued to slow down until asset purchases began in November, 2010:
No matter how you measure it, inflation quickly accelerated. The next chart shows how things stood as QE2 was coming to a close in June, 2011:
In fact, the acceleration in inflation since the start of QE2 more than outweighed the initial slowdown in inflation that prompted the Fed to consider the programme in the first place. (We aren’t implying any causal connection, merely noting certain coincidences in timing.)Magic?
Moreover, inflation continued to accelerate in the months after QE2 ended but before Operation Twist and reinvestment of maturing agency MBS began at the end of September. Headline CPI and PCE inflation both peaked in September, 2011. The annual rate of core CPI inflation continued to accelerate until April, 2012, while the rate of core PCE inflation was speeding up until March, 2012.
Thanks to welcome declines in commodity prices due to the combination of increased supply and reduced demand in the rest of the world, headline rates of inflation sharply decelerated after September, 2011. Core inflation slowed down as the spring of 2012 turned into summer, although the pace of core inflation was still significantly faster than when QE2 ended....MUCH MORE
None of the above?
The inflation talk was a red herring dragged across the path of wealth transfer?
