JACKSON HOLE, Wyo. — There is still plenty of skepticism about the stimulus campaigns of the Federal Reserve and other central banks, and there is plenty of concern about the consequences. But for the first time in several years, there was also a general sense of optimism among the policymakers gathered here last week for an annual meeting at the foot of the Grand Tetons that things are going reasonably well.
Unconventional monetary policy “has been a significant success altogether,” Christine Lagarde, managing director of the International Monetary Fund, said. She said the efforts continued to yield benefits and should not be unwound too quickly.
Even for developing countries, which have sometimes criticized the efforts, the effects are “still positive,” she said. “Marginally, but still positive.”
But the conference, convened by the Federal Reserve Bank of Kansas City, underscored again the striking divide between widespread skepticism among academics about the benefits of the Fed's asset purchases, and equally widespread confidence among policymakers.
The Fed has accumulated more than $3 trillion in Treasury securities and mortgage-backed securities, and since December it has been expanding those holdings by $85 billion a month in an effort to drive down unemployment and promote growth.
A series of academic presentations criticized the power of that approach. The most supportive said that the Fed's purchases of Treasuries had little value but that its purchases of mortgage-backed securities “likely have had beneficial macroeconomic effects.”
That study, by Arvind Krishnamurthy, an economist at Northwestern University, and Annette Vissing-Jorgensen, an economist at the University of California-Berkeley, still found little economic benefit in holding on to the mortgage bonds and Treasuries, a basic element of the Fed's stimulus campaign. And it argued the Fed is undermining its own efforts by failing to articulate a clear plan for the purchases.
Policymakers tend to view these critiques as triumphs of theory over reality. They point to events in June as a kind of perverse evidence, noting that a wide range of interest rates jumped after the Fed's chairman, Ben Bernanke, announced that the Fed intended to reduce its monthly asset purchases by the end of the year. The implication, they said, is that the purchases had been suppressing those rates.
As rates rise, history suggests that some of the money may come sloshing back, with hugely disruptive consequences.