First, I think they are absolutely on target in emphasizing that the rapid growth of fixed-income funds – as well as other, similar vehicles – bears careful watching. As they point out, it would be a mistake to be complacent about this phenomenon simply because such funds are unlevered.
Indeed, a commitment to a policy framework that is systematic and rule-like provides the foundation for establishing expectations for the future path of policy and thus forward guidance. If we only had a reaction function The appropriate way to make policy systematic and rule-like is to make policy history dependent and base policy decisions on the state of the economy.