Chris Giles’ excellent blog has highlighted the ‘rationalisation after the fact’ of QE – changing your mind about how it works. Taking the MPC minutes, they demonstrate how the emphasis has changed over time, using an amusing colour coded pair of tables. Their conclusions:
it is obvious the Bank has flipped and flopped over the intermediate objectives for QE last year. It was all about expanding the money supply and the price of corporate bonds until it wasn’t; it had little to do with lowering gilt yields and then that is what the public should focus on
This is annoying: I have been doing the very same thing, except getting more personal. This is from my upcoming publication:
Massive changes of mind, and outright disagreements. At the beginning: it will work through bank lending. Mervyn sticking for the ‘it’s about money innit’ line when Adam and David expclicitly deny it.
The end of QE happened today. Much righthandwringinging over this. But this is hardly a gilt ‘plunge’, Guido, and you know it. What a shocking removal of context from a graph. Here is a better timescale:
Like I said earlier, why do people think they can beat the market on the basis of a widely anticipated event? Fidelity still see reason to buy gilts. One reason the Bank has ended the programme may be because it thinks the stock not the flow of QE is what counts (see Ed Conway). I am with Ed: they make a much bigger difference as they are happening, than through just sitting there. Reserves created are fairly inert at these levels of rates and activity, IMHO.