It may look, swim and quack like one, but Federal Reserve Chair Jerome Powell insists that the Fed’s recent reinflation of its balance sheet past the $4 trillion mark isn’t quantitative easing. Oh no, he says, just because the Fed’s portfolio recently rebounded to $4.175 trillion at the middle of January, up from a six-year low of $3.76 trillion since the beginning of September, doesn’t mean that the Fed is back to its old QE ways, which had pushed the Fed’s balance sheet to a steady $4.5 trillion between 2014 and 2018 when it started to shrink.

But QE by any other name is still QE.

At least one voting member of the Fed’s monetary policy committee has expressed some concern about the recent boost in the Fed’s balance sheet – more than $400 billion in just the past four months.

“The Fed balance sheet is not free and growing the balance sheet has costs,” Robert Kaplan, the president of the Dallas Fed, told reporters at a recent Economic Club of New York event, according to the Wall Street Journal. “Many market participants believe that growth in the Fed balance sheet is supportive of higher valuations and risk assets. [That’s Fed-speak for a bubble]. I’m sympathetic to that concern.”

For the past 12 years, ever since the financial crisis in 2008, the Fed has swollen the size of its balance sheet – its holdings of U.S. Treasury and government-insured mortgage-backed securities – from less than $1 trillion to more than four times that. Its first burst of bond-buying took place in 2008, during the depths of the meltdown when its portfolio more than doubled in less than a year. It then gradually increased to more than $3 trillion over the next five years, at which time QE took it to $4.5 trillion, where it held steady until 2018, when the Fed started to allow its holdings to run off as they matured, until its recent policy U-turn.

And what was the direct result of all that buying? Continue reading "QE or Not QE: The Consequences Are The Same" →