Fed's Williams: Nagging concerns over QE impact

Fed's Williams: Nagging concerns over QE impact

The Federal Reserve's asset purchase programs have proven "a potent but blunt tool" that still unsettles policy makers, said John Williams, president of the San Francisco Federal Reserve Bank, on Thursday. "There are nagging concerns that large-scale asset purchases carry with them particular risks to the economy or the health of the financial system that we still don't fully understand," Williams said in a paper delivered at a Brookings Institution seminar on U.S. monetary policy. The Fed seems on a steady path to taper its bond purchases this year in part because uncertainty over the program. Williams called for a "new flurry of research" by academics on asset purchases and the central bank's overall response to the financial crisis. Williams said academics should ponder whether central banks might have to raise their inflation targets above 2% to provide a sufficient cushion above the zero-bound. Another issue is whether the Fed should target the path of GDP adjusted for inflation instead of a simpler inflation target. The central bank's new forward guidance tool seems "overly simplified and prone to misinterpretation," he said.