QE is just one of many tools available in the Fed's economic tool box to fine-tune the US economy towards low unemployment and economic growth. The convenient criticism against QE has been that it is printing money recklessly, without offering a viable alternative. now that the Fed has announced its QT (Quantitative Tightening 2022) policy, In the wake of QT, why are the QE critics not applauding the Fed's decision to tighten the money supply, to counter the effect of QE?
QE was absolutely needed when Covid caused a shutdown of the economy. The problem with QE is it lasted about a year too long when things were already back to normal which allowed inflation to get out of control. QT is needed and welcome given the situation imo.
Inflation is out of control due to supply chains and labor markets being broken across the board, both in the US and globally. It has little to nothing to do with QE. And frankly, QT isn't going to fix it either.
The stimulus has been over, this current inflation is more related to energy and supply chains. We whiplashed from goods/services to goods to services and eventually back to goods/services.
Contrarian thought on QT is that converting those bank reserves to cash will give banks extra money on hand. But with the current weakened climate and worldwide liquidity issues, what if banks choose to convert that cash to 3% T-bonds? This happened post 08 when Treasuries started dominating as pristine collateral for quick trades in repo markets. Banks weren't sucking them up for the coupon. The Obama admin dangled all these incentives to spur home and biz lending but the banks didn't trust new jumbo loans completing to term, so they did their savings destroying trade instead. Food for thought. Beats me. BTW, these rate policies take a good half a year to fully determine the scale and impact. I doubt this is the end of inflation or the very least the high prices of food and fuel. With retail getting killed in earnings, durables and discretionary are probably going through a lot of demand destruction.
just the opposite will be true w QE, Fed bought assets from banks, providing more liquidity in the economy. $ supply was increased just the opposite will take place w QT. the Fed will sell assets (to banks and others) from its balance sheet which, effectively, lessening liquidity in the economy, which decreases money supply
I feel like Demand is always the better way to go. Every single time. I believe that is the more capitalist way to do things. If people in the populace have money to spend it will help the businesses. If businesses and banks have more money they won't just spend it willy-nilly. But if people are spending money businesses will hire and increase to meet the demand.
The Fed under Obama tried all the monetary stimulus it could, but Congress under Obama thought austerity was the prudent solution. Fiscal and monetary policy weren't working together. We over corrected a bit during Covid and got fiscal and monetary policy more line but we kept the juice running a bit too long. No clue what type of recession we will have, but I think it will be more mild than severe. We still have a lot of long term tailwinds with US demographics and technology. Either way we need to unwind QE and loose monetary policy so we can go back to it sooner than later.
Need to separate QE on financial assets vs direct stimulus checks to the average person. Direct stimulus helps us more, but also causes more inflation to everyday necessities. (No idea what's the right policy)
Depends on the circumstances, I guess. Right now, all the inflation is being caused by things unrelated to monetary policy. Cars are more expensive because of a chip shortage. Flights are more expensive because of a pilot shortage. Rental cars are more expensive because rental companies sold all their cars in 2020 and now can't buy them back because of the aforementioned car shortage. Food and other products are more expensive because of a lack of truckers and port workers. Energy and food are more expensive because of Ukraine-related shortages. Restaurants are struggling because of a lack of staff. Baby formula is more expensive because of a plant shutdown - and thus lack of supply. On and on. Basically everything is being driven by supply-chain-driven shortages as opposed to too much money juicing demand. For example, car sales this year are near recession levels apparently - but not because of a lack of demand but simply a lack of supply. Raising interest rates doesn't really fix anything - it just drives everyone down. We want demand to stay where it is - it's not really excessive right now; we just need to fix the supply end of things. But no one really knows how to do that so the solution seems to be to try to treat the symptoms instead of the actual problem.
that's true for new auto, specifically EVs. on the flip side, used car sales, in particular hybrids, have been robust.
QE was first implemented under FDR, in the 1930s, it was referred to as "credit facility" and some other descriptions such as "increasing the monetary base", effectively a continuous injection of liquidity (by the Fed) into the economy until the desired economic resutls were achieved. in 1969, Friedman's alternative proposal was the money drop should be an one-time event. the money drop during FDR/Bush43/Obama were essentially a permanent money drop program until the desired economic goals were achieved.
