Why QE4 Isn't in the Cards

First, the Fed now wants to normalize monetary policy, and not venture even deeper into uncharted territory. The first policy consequence of the market rout is to virtually ensure that the central bank won't choose September to carry out its first rate increase in nine years.  It also reduces the probability of a December hike, though that remains a possibility because not all the consequences of the recent turmoil are negative for the U.S. economy (for example, lower prices for oil and other commodities, and the decline in market interest rates).

Second, unconventional policies haven't proved as effective as expected in stimulating high and sustainable growth. Indeed, the Fed has repeatedly had to revise downward its projections. Central bankers also have been forced to pay greater attention to the potential for collateral damage and unintended consequences — including distortion in the financial markets, misallocation of resources and the inadvertent worsening of wealth inequality.

Third, the origin of the financial market dislocation is outside the U.S. this time. The turmoil reflects the generalized slowdown in the emerging world, including China, along with worries that policy makers there have less capacity to respond quickly and effectively. More generally, to echo Raghuram Rajan, the highly respected governor of India's central bank, there are genuine questions about whether the world's central banks have the ability to continuously intervene in markets, and about whether they should want to.

Finally, having exited the third round of easing in a relatively orderly fashion in October, the Fed would be hesitant to place itself in the same position again — not only for economic reasons but also because of the political risks involved.

So it's premature to expect the Fed to come to the rescue of the markets via a QE4. And such a step probably wouldn't probably be in the broader interest of the economy at this stage. Markets need to get used to finding their equilibrium with less exceptional help from central banks. We should hope they will be able to do so in the future by relying on better fundamental economic conditions.