QE by a Different Name is Still QE

Michael LebowitzAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

The Fed added quantitative easing (QE) to its monetary policy toolbox in 2008. At the time, the financial system was imploding. Fed Chair Ben Bernanke bought $1.5 trillion U.S. Treasury and mortgage-backed securities to staunch a financial disaster. The drastic action was sold to the public as a one-time, emergency operation to stabilize the banking system and economy. Since the initial round of QE, there have been four additional rounds, culminating with the mind-boggling $5 trillion operation in 2020 and 2021.

fed balance sheet

QE is no longer a tool for handling a crisis. It has morphed into a policy to ensure the government can fund itself. But as we are learning today, QE has its faults. For example, it's not an appropriate policy in times of high inflation like now.

That doesn't mean the Fed can't provide liquidity to help the Treasury fund the government's deficits. It just needs to be more creative. To that end, rumors are floating that a new variation of QE will help bridge liquidity shortfalls.