The QE Path Can Be Much Bumpier This Time Around

Finweek English|4 June 2020

The QE Path Can Be Much Bumpier This Time Around
US government debt is ballooning and is set to increase exponentially. Measures taken to address this will be felt worldwide.
Maarten Mittner

In 2009, the US Federal Reserve (Fed) in effect saved the world by embarking on a massive program of monetary stimulus, called quantitative easing (QE), and so – through its extended money-printing and -buying program – prevented a global depression from taking hold.

With the onset of the coronavirus pandemic in 2020, the Fed has embarked on precisely the same path, initiating an initial $700bn bond buyback, this time in conjunction with fiscal measures from the US Congress. More has been promised.

In total, about $3tr has been pumped into the US economy at a time when the GDP could fall 30%, in the same way, it did during the Great Depression of the 1930s, and as its unemployment has already ballooned to nearly 15% from below 4% at the beginning of the year.

As a result, total US debt is set to balloon further. To mitigate the debt surge, the Fed is banking on a huge turnaround in economic growth. Fed chairman Jerome Powell predicts a strong recovery in the US economy already in the third quarter of this year.

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4 June 2020