The fact that M2 has hardly budged from its established long-term path indicates that quantitative easing was not a change in monetary policy, in the sense that it was not used to alter the path of the standard broad monetary aggregate in a sustained way.
I think that the best way to think of all forms of government intervention in financial markets, including regulation and so-called monetary policy, is to remember that the goal is to allocate credit. Talk about financial stability or economic management is just smoke and mirrors.
White’s paper is on the problem of “exit” for the Fed, meaning reducing its balance sheet. But “exit” is not desired if my hypothesis, that the goal of government is credit allocation, is correct. Already, the balance sheet has remained large for far longer than was expected by anyone who thought of the Fed as conducting monetary policy. My hypothesis predicts that five years from now the Fed will have a balance sheet of approximately the same size, or larger. If the Fed were about monetary policy, such a prediction would seem ludicrous.
This reminds me of the ‘interpretive frameworks’ discussion. There are multiple possible explanations for why the balance sheet has remained large and why it might also grow in the future. How are we supposed to tell the difference between a Fed which is really only interested in allocating credit, and a Fed which will simply continue to accommodate so long as growth and inflation rates are low?
This requires an assumption of what neutral means. An appropriate neutral is a constant balance sheet relative to gdp, that is, growing with gdp, so not growing would still be contractionary as it has been since no longer reinvesting though rates are low.
An excellent post on why their balance sheet is too small.