The Current Policy Of Quantitative Easing

948 Words Dec 16th, 2015 4 Pages
The main purpose of this article is to analyze the current policy of Fed and to discuss how the New Fed Chairman Janet Yellen will deal with current policy of Quantitative Easing. The article analyzes the impact that policy had and what Janet Yellen`s exit strategy is in light of current FED intervention in economy.
Since 2008 economic crises Ben Bernanke promoted a policy of Quantitative Easing, which was used after interest rates were brought down to the lowest level and government bond buying couldn’t effect the stimulation of economy any more. The purpose of that policy was to stimulate economy and provide banks with more monetary resources to conduct there day to day business.
Economists argue that Fed can keep current monetary policy by increasing reserve requirements for banks, but this was done in 1937 and it wreaked havoc on banks. At that time banks were holding excess reserves and fed assumed that doubling required reserve won`t affect the banks and economy. The increase in reserve requirement was one of the factors that caused recession of 1938. It is argued that if Fed decides to increase reserve requirement to soak up excess money supply it could cause another recession.
The fed is facing a dilemma of dealing with 2.3 trillion dollar of excess reserves held by banks as the economy starts to recover. Currently Fed is paying banks 0.25% interest on these excess reverses and the financial institutions seem content because of low interest rate elsewhere. When…
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