The $4.5 Trillion Gift

Let me tell you a little story. It starts in November 2008 when the Federal Reserve launched an $800 billion bond-buying program to lower lending costs for borrowers as well as home buyers. The program was called “quantitative easing” (QE), which sounds like gentle and vague academic talk. This was on the heels of the financial meltdown earlier that year, and it didn’t end until October 2014 – a hair under six years.

By then, the Fed’s balance sheet grew to about $4.5 trillion in assets – assets, mind you, it created out of thin air. Well, let me clarify: The assets weren’t created out of thin air, just the money to pay for them, although to me that seems like a distinction without a difference.

The Fed Chair at the time, Ben Bernanke, announced an end to QE in June 2013, but after a rather large stock market drop (known as the “taper tantrum”) within a three-day period, he decided to hold off. It would be the current Fed chair, Janet Yellen, who would finally end the program in 2014.

So, from 2008 through 2014, the Fed used every tool it had to fight deflation, create jobs, and grow wages. The unemployment rate finally shrank to 4.5%, and inflation grew to its 2% target (just this year).

And so the Fed can argue that low unemployment and stable prices are the result of its policies – eight years’ worth of artificially low rates along with QE.

They can argue it, but I’m not buying it! It starts in November 2008 when the Federal Reserve launched an $800 billion bond-buying program to lower lending costs for borrowers as well as home buyers. The program was called “quantitative easing” (QE), which sounds like gentle and vague academic talk. This was on the heels of the financial meltdown earlier that year, and it didn’t end until October 2014 – a hair under six years.

In December 2015, a little more than a year after QE ended, the Fed hiked rates by a measly quarter point because, by all accounts, the economy had turned the corner and it was time to normalize rates. Remember, not only did the central bank surprise the markets by hiking, but it implied it would hike another four times in 2016.