Does Quantitative Easing Work in Boosting the Real Economy?
Tomorrow the Federal Reserve will make an important and much anticipated announcement about monetary policy over the coming months. The main question for most market watchers and economists has to do with quantitative easing, or QE. It is widely believed that the Federal Reserve will initiate a program of quantitative easing in which a central bank buys financial assets with money it creates. This adds to the overall quantity of reserves in the banking system – hence the name quantitative easing.
The goal of the QE program will be twofold. First, the Federal Reserve is charged with ensuring full employment in the US under its legislated dual mandate. As unemployment and underemployment is high in the United States, the Fed hopes it can use quantitative easing as a tool to bring the US closer to full employment. Second, the Federal Reserve is also charged with ensuring price stability in the US. As both the official and the core rates of consumer price inflation (CPI) as measured by the US government have fallen to near zero, the Federal Reserve is concerned that it will lose control over its ability to ensure price stability. The Fed hopes it can use quantitative easing as a tool to bring the US closer to its stated long-term inflation target, which is a CPI increase of about 2%.
I have talked about quantitative easing often in the past. But as we head into the Fed’s decision, I want to ask you readers the following:
- "Does Quantitative Easing Work in Boosting the Real Economy?"
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