Easy Monetary Policy = Inflation?
One of the more persistent themes we’ve been hearing from forecasters, for quite some time now, is that the Federal Reserve’s easy monetary policy—starting with its move to drive the Federal Funds rate from 5.25 percent to zero—would inevitably lead to a dramatic spike in inflation.
As each new round of quantitative easing (QE) was announced, the chorus only grew louder. We’ve now had QE1, QE2 and QE3. As a result of those bond buying programs, the Fed’s balance sheet has more than quadrupled, from less than $1 trillion to more than $4 trillion.
Since it’s now been more than six years since the Fed first took action to address the financial crisis, I thought it would be worthwhile to take a look at how the many predictions of rampant inflation have played out.
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