Still think this glut in oil supply isn’t a QE4 equivalent for the US?
The Quartz article is by Steve Levine, an academic and author of two books on oil, discusses the pendulum of power within OPEC shifting from the Saudi’s to the US (although some could argue the pendulum was never out of place). Levine references a good article from last week’s NY Times on the balance of power. It seems a shame that transparency for a key component in reported CPI is so low.
While there is talk of a rise in the Fed funds rate within 2015, I have remained hugely skeptical, especially since “the historical ratio of three-month treasury yield versus monetary base/nominal GDP shows that if the short-term yield returns to the normal level of 2 percent, the Fed will have to contract as much as 50 percent of its assets, which is equivalent to US$2 trillion and represents over 12 percent of its GDP,” as Eric Lui states in his EJ Insights piece. This means that as the Fed raise interest rates, they will have to raise interest payments on its over-inflated balance sheet.
Therefore, should the US consider implementing a new operating framework for its key lending rate? An interest-rate corridor should be a consideration, such that “The authors [Gagnon and Sack] map out a future that concludes with a proposed permanent framework that will not be entirely free of the residual QE portfolio until around 2025. That is the time frame that the authors foresee as required for complete exit from quantitative easing. They build in flexibility for adjustment of policy along the way as the Fed gains experience in observing how the markets react to various stages in the transition.” The policy brief can be found here: PIIE’s Monetary Policy with Abundant Liquidity.