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Economist disputes Niall Ferguson's claim that the Fed is to blame for the stock market’s volatility

Sometimes I feel like if aliens opened a wormhole and invaded the solar system tomorrow, there are people who would immediately start writing articles blaming the incursion on the Federal Reserve's program of quantitative easing.

Niall Ferguson, Harvard historian and outspoken political and economic commentator, might be one of those people. On Oct. 24, Ferguson penned a column in the Wall Street Journal blaming QE for the stock market volatility of Oct. 15. Ferguson writes:

I suspect that the return of volatility has relatively little to do with poor growth data or political turbulence. Instead, it is mainly about monetary policy…


QE offers a “tradeoff between more stimulus today at the expense of a more challenging and disruptive policy exit in the future,” as the authors of a recent paper, put it. “Stimulus now is not a free lunch, and it comes with a potential for macroeconomic disruptions when the policy is lifted.”…


Like the “taper tantrum” of summer 2013, this year’s October volatility has shown that there is indeed no smooth way out.


The paper Ferguson cites, by economists Michael Feroli, Anil K Kashyap, Kermit Schoenholtz, and Hyun Song Shin, presents an interesting conjecture, and shows some evidence that monetary policy changes can disturb the financial system. That’s not at all surprising. based on a large body of research.

But Ferguson takes this evidence and draws two conclusions that seem like a stretch to me... 

Read entire article at Bloomberg