NIBC Macro Economic Focus: Quantitative Easing in the US: Will it Lead to Inflation, Deflation or a New Asset Bubble?

THE HAGUE, The Netherlands - Today, the US Federal Reserve’s Open Market Committee (FOMC) has scheduled a regular meeting. This time, no changes in interest rates are expected. With interest rates stuck at a level just above zero, the Federal Reserve recently opted for the policy of quantitative easing to rekindle the economy.

NIBC Research has published a Macro Economic Focus report, which discusses some potential consequences of quantitative easing. The report is entitled:

‘Quantitative easing in the US: will it lead to inflation, deflation or a new asset bubble?’

The report is available online via this link:

www.nibc.com/press/Documents/Research/Quantitative%20easing%20in%2 0the%20US.pdf

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Key points are: - To counter deflationary forces in the US, the Federal Reserve has deployed quantitative easing (i.e. the electronic printing of a predetermined quantity of money by purchasing assets) to get lending going again. - Quantitative easing is unlikely to lead to the desired results in the near term. As the US public faces mountains of debt and solvency issues on a grand scale, borrowing money will lose popularity no matter what the central bankers will do. - The velocity of money is likely to fall further until the real economy and the aggregate price level eventually bottom out and recover. Nonetheless, that could take a while, as the Japanese experience in the 1990s and early 2000s has shown.

NIBC Research

www.nibc.com

Source: NIBC

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