There were two interesting developments in the world economy last week that some have called a sea change. First, the US Federal Reserve bank ended its programme of what is called ‘quantitative easing’ (QE). This is the purchase by the central banks of government, corporate and real estate bonds paid for by ‘printing money’, or more precisely creating reserves of money in banks.
This ‘unconventional’ monetary stimulus was adopted by the Fed and other banks after they had cut their interest rates for lending to commercial banks (the ‘policy rate’) to zero and the major economies were still struggling to get out of the Great Recession. The argument was that once interest rates were ‘zero-bound’, further stimulus to the economy would have to be ‘quantitative’, based on more money quantity rather than just being cheaper to borrow (lower interest rate).
Well, at its meeting last week, the Fed announced that…
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