So Long, QE. I'm Sure We'll See You Again Soon
Over the past two recessions, asset purchases went from exotica to ho-hum tools of monetary policy. Don’t be surprised to see the practice return.
See you next time!
Photographer: Harold M. Lambert/Lambert/Getty Images
Forecasters have been projecting ever-higher interest rates, especially from the Federal Reserve, whose top officials meet this week. Spare a thought for quantitative easing, the powerful stimulus tool that that played a vital role in buttressing economies and markets early in the pandemic. It struggles to get much of a mention these days.
Even if massive bond purchases are in retreat, QE is far from routed. If anything, the tool has become legitimate — almost mainstream. Quantitative easing has migrated from the U.S. and Western Europe, where it was deployed in the aftermath of the 2008 crash, to Australia, New Zealand and even in emerging markets such as India, places once horrified at the prospect. Stigma lost, the practice will almost certainly return at some point. (Japan introduced asset purchases long before the global financial crisis and they are still the policy anchor.)
The “thanks for coming” note has been lost as investors look to critical Federal Open Market Committee meetings. The FOMC said in December it will hasten the end of QE, wrapping up the current program early this year. Attention has rapidly turned to how many hikes the Fed has in store and when they will begin, with many economists eyeing liftoff in March. Goldman Sachs Group Inc. forecasts four moves this year, with the risk of more.
The prospect of quantitative tightening from the Fed in coming months is also in focus. The Reserve Bank of Australia is likely to at least foreshadow the conclusion of QE next week, if not outright ending it. Canada and New Zealand have wound down.