Last month the Federal Reserve ended its Quantitative Easing program, which was an effort to buy bonds and reinvigorate the economy. QE began in late 2008 and lasted longer than nearly everyone (except the Fed) expected.
Did it work?
Some are pointing to improved economic metrics, while others say it had little effect on 99.5% of Americans. I think it’s too early to render a final verdict.
That said, I do want to focus on one of the projected detriments of the program – inflation. Many feared QE would lead to vast inflation, even hyperinflation. However, by all standard measures (the Consumer Price Index), inflation is “under control” at 1.7%, and hyperinflation is not in the forecast.
But I think we’re limiting our view of inflation to the CPI. A broader observation would indicate that there is indeed inflation, it’s just not reflected in our established definition of the concept. We’re seeing it in bloated stock market returns, 401(k) balances and real estate valuations, none of which are included in the CPI.
To me, QE policy has so far led to inflated asset prices and low forward-looking returns. And I’m pretty sure that if/when the stock market starts to tank, the Fed will play the QE card once again.
We seem to think everything is under control, but perhaps we’re actually flying by the seat of our pants because all this debt has to unwind. And that means there will likely be a serious correction in asset prices. But as long as easy money is around, the markets love it, and it doesn’t matter who’s printing the money.