Changes and Impact of Monetary Policy in the United States: Quantitative Easing and Federal rate hikes

Authors

  • Zhihao Chen

DOI:

https://doi.org/10.54097/zy3m1256

Keywords:

Balance sheet, Quantitative Easing, unconventional Monetary Policy, Financial Crisis, Federal Reserve's interest rate hikes

Abstract

In response to the 2008 financial crisis, marked by the collapse of Wall Street giants like Bear Stearns and Lehman Brothers, the U.S. faced significant economic challenges. Traditional monetary policy tools proved ineffective as interest rates neared the Zero Lower Bound. Consequently, the Federal Reserve implemented Quantitative Easing (QE) as an unconventional measure to stimulate financial markets. This policy was executed in four phases, and by the end of the fourth round, U.S. inflation rates surpassed the 2022 target. Elevated inflation impacted living standards, prompting the FED to introduce interest rate hikes in 2022 to control it. Supply chain disruptions were a major contributor to this inflation spike. This paper uses qualitative and statistical methods to explore QE and the subsequent FED rate hikes. It emphasizes that QE essentially expanded the FED's Balance Sheet and uses visual data like graphs to illustrate the FED's actions since 2022. The article provides a comprehensive view of U.S. monetary policy adaptations during and after the financial crisis. The first three QE rounds addressed the 2008 crisis aftermath, while QE4 combated the economic fallout of COVID-19. The 4 rounds of QE and the last 2 years of Fed rate hikes have been generally successful. Both monetary policies have had some proven effect on the US economy. However, by critical thinking, QE has potential downsides, like fostering economic bubbles and inflation.  And the Fed's repeated interest rate hikes have led to the problem of bank failure. Therefore, the Fed's monetary policy choices, especially unconventional ones like QE, require weighing benefits against potential risks.

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Published

22-01-2024

How to Cite

Chen, Z. (2024). Changes and Impact of Monetary Policy in the United States: Quantitative Easing and Federal rate hikes. Highlights in Business, Economics and Management, 24, 2085-2092. https://doi.org/10.54097/zy3m1256