After nine years of QE, it may be too difficult for central banks to simply “turn off the taps” or even threaten to turn them off without causing unintended consequences according to Williams.
Speaking to Portfolio Adviser, Williams said central banks have to continue with QE even if, as is believed will happen, fiscal policies come to the fore.
Williams said: “My concern not just for this year but further out is that after nine years of running QE, keeping the taps full on, how do central banks now turn off those taps or even indicate to financial markets that they’re going to turn them off, without causing unintended consequences?
“The first reason they couldn’t turn off the taps is now central banks have skin in the game so if they take us off guard, stepping hard on the interest rate brake like the Fed did in 1994 – they themselves are going to feel some of that pain because they are managing these assets, so it seems to me that that skin in the game is going to be one big factor precluding the central banks from being able to shut down the taps.
With Williams unsure if anyone could then step forward to buy more bonds to help finance debt, he said: “For QE to be shut off quickly it means we’re going to have to be pretty sure as government, and as tax payers ultimately, we can finance our growing debt.”
He added: “If we are going to switch off QE for whatever reason then someone else is going to have step in to buy bonds to finance our debt, and I don’t see that happening and as a result it seems to me if we’re going to open the fiscal box it seems banks will have to keep the taps running, and that seems to go against where markets are moving.”
