For Easing, Against Quantitative

When I was talking to Mike Konczal before our monetary policy panel, I mentioned that I actually think "quantitative easing" isn't such a hot idea but I'm leery of saying so since I think it's difficult to make the point in a clear way. But as David Beckworth explains here, the problem with QE isn't the "easing" it's the "quantitative."

To understand why you have to start with the little-understood question of what's "quantitative" about "quantitative easing." And to understand that you have to go back to what conventional monetary policy looks like. You typically see conventional monetary policy moves reported in the press as something like "the European Central Bank raised interest rates 0.25 percentage points." But there's no knob in Frankfurt that Jean-Claude Trichet turns to change the point at which the interest rate is set. What happens is that a central bank sets a target for where it wants short-term rates to be, and then it conducts "open market operations" (i.e., the buying and selling of bonds) to hit the target. QE differs in that it targets it a different set of rates—longer term interest rates when the short-term rate has gone close to zero. But it also differs in that instead of specifically picking a target number and then promising to do what it takes to hit the target, the central bank specifies a quantity of money that will be spent purchasing assets.

I have quite literally no idea why the Federal Reserve has decided this is a good way to conduct monetary easing at a time of near-zero rates. The downsides are enormous, ranging from the arbitrary fixation on round numbers to introducing confusion in the eyes of the public. The right approach is to set a goal, a state of the world that you want to achieve, and then promise to conduct whatever open market operations are necessary and proper to achieve the goal.