Some commentators have suggested that a decision by the Fed to begin “tapering” bond purchases would have been a mistake on a par with the central bank’s policy tightening in 1936-37 – viewed by many as a key driver of the 1937-38 “Roosevelt recession”. Such claims are fantastical.

The Fed doubled reserve requirements in 1936-37, cutting the effective supply of liquidity to banks by one-third, according to the adjusted reserves series compiled by the St. Louis Fed. Reducing bond purchases, of course, merely slows the rate of increase of reserves rather than yielding a decline. A cut in bond buying to $75 billion per month in the fourth quarter, $50 billion in the first quarter of 2014 and $25 billion in the second quarter would still result in reserves swelling by nearly 20% by mid-2014.

Worries about QE wind-down appear even less grounded from a global perspective. Combined bank reserves in the US, Japan and Euroland will plausibly rise by about 40% to $5 trillion by the end of 2014, assuming that Fed bond purchases slow to zero during the first half, the Bank of Japan adheres to current plans and ECB liquidity actions are broadly neutral – see chart. Put differently, of a $3.4 trillion projected rise in reserves between the start of 2009 and end-2014, two-fifths has yet to occur.

The Fed’s decision to maintain bond buying at $85 billion per month rather than cutting to $75 billion, as was widely expected, will have a tiny impact on global liquidity but has increased policy uncertainty and underscored the uselessness of central bank “guidance”; the soggy considered response of equities appears warranted.