WASHINGTON What a difference a year makes.
Federal Reserve Chairman Ben Bernanke used the 2012 meeting in Jackson Hole as a platform to make his case for a third round of bond buys. This year, with the Fed chief absent, the tone was starkly different as featured research papers questioned the value and efficacy of the central bank's unconventional stimulus policies.
Robert Hall of Stanford University argued that unconventional monetary policies have been largely ineffective because of the constraints posed by official interest rates that are already effectively at zero. He also dismissed the beneficial effects of the central bank's attempt to provide "forward guidance" to financial markets.
"Both quantitative easing and forward guidance, as implemented by the Fed, are obviously weak instruments," he said, pointing to the failure of the U.S. economy to rebound strongly despite prolonged easy monetary policy as evidence.
Another paper questioned the Fed's presumptions about how its asset purchases work, claiming that the effects are much narrower than the central bank has claimed. In particular, Arvind Krishnamurthy of Northwestern University found the Fed's bond buying affects only the markets that it targets, not interest rates more broadly.
"It does not, as the Fed proposes, work through broad channels such as affecting the term premium on all long-term bonds," the paper stated.
Still, there were few calls for an immediate pullback on monetary stimulus. Indeed, Stanford's Hall argued that the biggest mistake the Fed could make would be raising interest rates too soon.
"The central danger in the next two years is that the Fed will yield to intensifying pressure to raise interest rates and contract its portfolio well before the economy is back to normal," Hall wrote.
Christine Lagarde, managing director of the International Monetary Fund, had a similar message for rich-country central banks more generally: "The IMF does not suggest a rush to exit," she said during a keynote luncheon speech.
OFFICIALS PUSH BACK
Predictably, current and former Fed officials took issue with the research findings.
James Bullard, president of the St. Louis Fed, said Krishnamurthy's focus on market impact immediately following policy announcements was misleading.
"I just wanted to push back against this conclusion that you get an effect in one single market and then there's not that much (impact) over a variety of assets," Bullard said.
Donald Kohn, a former Fed vice chair, was also skeptical.
"The findings do not comport very well with the experience of the last couple of months," said Kohn.
Another former Fed vice chair, Alan Blinder, was even more blunt regarding the idea that Treasury sales would not have a major market impact: "You don't want to retract that, given what happened recently?"
U.S. Treasury 10-year note yields have risen sharply in the last two months to two-year highs above 2.80 percent following hints from the central bank that it may begin winding down its asset-buying stimulus program, known as quantitative easing.
QUESTION OF WHEN
Policymakers speaking to various television networks at the conference offered few hints on the likely timing of an eventual pullback in asset purchases.
"I would be supportive in September as long as the data that comes in between now and then basically confirm the path we're on," Dennis Lockhart, president of the Atlanta Fed, told CNBC.
The St. Louis Fed's Bullard was more dovish, emphasizing a low rate of inflation as buying policymakers more wiggle room, in an interview with Fox Business.
"Current low inflation gives us flexibility to think about how we want to approach the tapering issue," he said. As for interest rates, Bullard called for incorporating the dangers of low inflation into the Fed's rates guidance.
"One thing that we could do is firm up our forward guidance by saying that we won't raise rates if inflation is running below 1.5 percent," he said.
Most economists agree that the Fed's crisis interventions were key to rescuing the financial system from disaster. But, as this year's conference shows, doubts about the efficacy and potential downside of bond-buying have been rising.
Even the Fed's own research has signaled growing distaste for the policy internally. Prominently, a recent paper from San Francisco Fed President John Williams emphasized the dangers of pushing a relatively untested policy too far.
Instead, policymakers appear keen to rely more heavily on "guidance" such as the Fed's current indication that, as long as inflation is in check, it will keep rates near zero until the jobless rate falls to 6.5 percent.
"The Fed has made the determination that the benefits of additional QE have gone down," Vincent Reinhart, chief U.S. economist at Morgan Stanley, said on the sidelines of the meeting. "They have a new toy, the thresholds to send signals, they never as a group particularly had much confidence in it."
Susan Collins, an economics professor at the University of Michigan, questioned markets' conventional wisdom that a September reduction in bond buys was a certainty.
"I think September is too soon. I don't think it's a done deal," she said.
(Editing by Dan Grebler)