"In the old days central banks moved interest rates to run monetary policy. ...All that changed when interest rates hit 0%; "printing money" (QE) replaced interest-rate changes. Because central banks can only buy financial assets, quantitative easing drove up the prices of financial assets and did not have as broad of an effect on the economy...
...the marginal effects of wealth increases on economic activity have been declining significantly.
The Fed's dilemma is that its policy is creating a financial market bubble that is large relative to the pickup in the economy that it is producing.
...the Fed is ...losing its effectiveness.
...quantitative easing is a much less effective tool when asset prices are high and thus have low expected returns than it is for managing financial crises.'
Quantitative easing today is driving asset prices to unsustainable levels, without stimulating much additional activity.
...interest rates are at zero and US asset prices have been driven up to levels that imply very low levels of returns relative to the risk, so there is very little ability to stimulate from here if needed.
...we're not worried about whether the Fed is going to hit or release the gas pedal, we're worried about whether there's much gas left in the tank and what will happen if there isn't."