Last Wednesday, the Federal Reserve officially put an end to their quantitative easing policy that has been in effect since the financial crisis of 2008. Quantitative easing is a type of monetary policy in which the Federal Reserve seeks to stimulate the economy by purchasing government securities. The policy keeps interest rates artificially low in an effort to encourage lending and stimulate the economy. Through quantitative easing, the Federal Reserve has bought more than $3 trillion of government bonds.
After six years of the quantitative easing program, the economy is experiencing a 3% annual growth rate and a sub-6% unemployment rate. The Federal Reserve’s decision to end the program is a promising indication of the overall recovery of the United States’ economy. While there have been clear benefits, the quantitative easing initiative has not been completely successful. The Federal Reserve’s target inflation rate of 2% was not reached. Such a low inflation rate can be an impediment to further economic growth. In addition, the potential gross domestic product (GDP) is still lower than the actual GDP, which is another limiting factor in the attempt to return to pre-2008 economic times. Overall, however, the quantitative easing era has had a marked impact in restoring our economy to prior form.