This was intended to prevent the Bank’s holdings becoming unduly concentrated in any particular segment of the market and had the  2  For a summary of the evidence, including references to related studies, see Michael Joyce, Matthew Tong and Robert Woods (2011), “The United Kingdom’s Quantitative Easing Policy: Design, Operation and Impact” Bank of England Quarterly Bulletin, 51(3), 200–212. 3  Specifically, investment-grade yields fell by around 70 basis points, while sub-investment grade yields fell by around 150 basis points. 2  BIS central bankers’ speeches  consequence of shifting them more towards shorter durations. The subsequent response of yields at different maturities was broadly in line with what would have been expected on the basis of our first round of purchases (see Chart 3). The approach is also less suited to analysing the impact on the prices of assets which are less immediate substitutes, such as equities. These are likely to take longer to adjust, as it probably takes a while for portfolio managers to decide how they want to rebalance their portfolios. But, as Chart 2 shows, equity prices rose substantially once QE was actually under way – by around 50% during QE1 and around 10% during QE2. In both cases, the switch from decline to growth coincides with the commencement of asset purchases. It seems unlikely that all of the recovery in equity prices during these periods was down to our QE.
It is an elaborate conceit to think anybody can be that precise in an economy as large as that of the United States, operating as it does within the context of an even larger, very dynamic, global economy. This is true for Fed economists as well as academics and those who sell their forecasts for a living. This is not to say that we will cease and desist from making “point” forecasts. But what matters most to me is the direction in which the numbers are headed and the general sense of momentum. At this juncture, I think it sufficient to say that, assuming the people we elect to tax us and spend our money and create the rules and regulations that govern our economic behavior can at long last get their act together, confront their own denial of most rudimentary budgetary discipline, learn to shoot straight and remove the Damocles Sword of uncertainty that they have for too long unwittingly wielded over our job-creating private sector, there is plenty of potential for the economy to move forward at an accelerating clip. This is especially the case now that the Fed has reliquified the economy. I expect that economic activity will accelerate in the second half of this year, with real GDP likely to rise at an average annual rate of between 3 and 4 percent.