Right after the last Federal Reserve Open Market Committee meeting, Peter Schiff said the “Powell Pause” won’t be enough to save the stock market and head off a recession. He said ultimately, the central bank would have to cut interest rates and launch another round of quantitative easing.
Well, it seems the mainstream is starting to catch up with Peter’s thinking. Yesterday, Bloomberg ran an article asserting that “instead of pausing, the central bank may need to start cutting interest rates to avoid a recession.”
Once upon a time, quantitative easing was considered an “extreme measure.” But it may become more commonplace. According to a Reuters report, central bankers in the US are discussing whether they should turn to that “tool” more often.
In other words, the Fed may make the “extreme” the norm.
We often criticize the Federal Reserve for its three rounds of quantitative easing. Coupled with artificially low interest rates, Fed QE stimulus — essentially money creation –pumped up all kinds of asset bubbles. Now that the US central bank is trying to tighten, we’re beginning to see the air seep out of those bubbles.
But when it comes to QE, the Federal Reserve has nothing on the European Central Bank. The ECB just announced the end of its QE program this month. The ECB’s QE purchases totaled somewhere in the neighborhood of 2.6 trillion euros. The bank also pushed interest rates below zero. So, what did the EU get for all this stimulus? Not a whole lot.
When the housing bubble popped in 2007, the Federal Reserve went to work to reinflate the bubble. It quickly pushed interest rates to zero, and in December 2008, the Fed launched the first of three rounds of quantitative easing. The virtual money printing lasted for five years.
So, what did we ultimately get for the billions of dollars created by these Federal Reserve programs? As Ron Paul explains in a special episode of the Liberty Report, more numerous and bigger bubbles, and another crisis waiting to happen.
Central bank quantitative easing is a little like a zombie. It dies – but it never really dies.
There’s been a lot of focus on the Federal Reserve raising interest rates and unwinding its balance sheet. Sometimes it’s easy to forget the Fed isn’t the only game in town. While most people consider QE dead and buried in the US, it remains alive and kicking in other parts of the world.
Yesterday, the European Central Bank (ECB) announced it would extend its bond-buying program deep into 2018, continuing the flow of easy money into the European Union. ECB President Mario Draghi said the central bank would cut its bond purchases in half beginning in January, a faint hint at eventual normalization. But the central bank president left the door open to backtracking.
The price of gold has fallen four straight weeks, primarily driven down by anticipation of Federal Reserve monetary tightening. The kickoff of the Fed’s balance sheet normalization program and the expectation of rising interest rates have helped spark a dollar rally. But few people seem to be paying any attention to the pitfalls of quantitative tightening. In fact, the Fed’s policy to push interest rates higher could turn out to be a havoc-wrecking juggernaut.
Last week, Janet Yellen announced the Federal Reserve will begin the much anticipated “tapering” of its massive balance sheet. The Fed chair also hinted another interest rate hike is in the works. After the most recent FOMC meeting, we raised the question: Is this a viable path forward, or is the central bank playing a game of monetary chicken? Peter Schiff has argued that the Fed ultimately won’t be able to reduce its balance sheet to any significant extent. So, despite the Fed’s hawkish stance, the path forward seems far from certain.
In a recent article published on the Mises Fed Watch, Tho Bishop also raised some poignant questions about how the Fed will actually move forward with monetary policy.