Evening Must-Read: James Pethokoukis: Did the Fed’s QE Boost the US?
The predictions made to Rand Paul, Ted Cruz, Paul Ryan and others back in 2009-2010 was that QE would lead to inflation and high nominal interest rates. Now they are complaining that it has led to low nominal interest rates, dollar “volatility”, a “destabiliz[ed]… financial system” and “distort[ed] investment”. You would think that by now they would be asking some hard questions of whatever economic “advisors” they have been listening to.
Apparently not.
James Pethokoukis tries to bring some reality:
…might provide some useful insights… understanding the Great Recession… is especially important. Take the role of the Federal Reserve during the Not-So-Great Recovery. Here is Senator Ted Cruz….
It’s time for a complete audit of the Federal Reserve…. The Fed has expanded its balance sheet fivefold, yet economic growth is still tepid… and median income and household wealth are depressed. Americans are living with near-zero interest rates on their savings… small businesses report credit is still hard to get. Quantitative easing has contributed to the dollar’s volatility… destabilizes the financial system… distorts investment. Other than elevating the stock market and key prices such as oil until lately, the Fed’s policies have not resulted in a long-term cure…. Enough is enough. The Federal Reserve needs to fully open its books so Congress and the American people can see what has been going on. This is a crucial first step….
Now one might get the impression from that statement that the Fed’s monetary easing efforts have been a bad, fruitless idea. I see things differently. Fed inactivity would have led to an ugly, Eurozonesque…. Martin Feldstein… calls quantitative easing a “success” that stimulated growth and job creation:
QE’s… aggressive program of bond-buying and its commitment to keep short-term interest rates low for a prolonged period drove the long-term rate down to about 1.5%. The sharp fall in long-term rates induced investors to buy equities, driving up share prices. Low mortgage interest rates also spurred a recovery in house prices… raised households’ net worth in 2013 by $10 trillion… led to a rise in consumer spending, prompting businesses to increase production and hiring, which meant more incomes and therefore even more consumer spending…. QE’s success in the US reflected the Fed’s ability to drive down long-term interest rates…
Folks supporting an active monetary policy the past few years should take a victory lap or sorts over the tight-money crowd…. And shifting to monetary policy rule, such as NGDP level targeting would seem to make the idea superfluous–unless your ultimate goal is to back the Fed into a tight monetary stance in lieu of return to the gold standard or some other commodity-based monetary standard.