Understanding the Social and Political Impact of Quantitative Easing in the United States

In the wake of the global financial crisis of 2007-2008, facing a major depression, and having rapidly exhausted its conventional monetary policy tools, the United States Federal Reserve Bank turned to unconventional monetary policy in the form of large scale asset purchases—also known as Quantitative Easing (“QE”)—to provide liquidity to frozen credit markets, lower interest rates to stimulate aggregate demand, and restore confidence to consumers and investors.  While the effects of QE on financial markets have been widely studied, less attention has been paid to the policy program’s other intended—and potentially unintended—consequences. The objective of this project is to evaluate these broader economic, social, and political effects in the United States. This paper will argue that:

• QE achieved its expected financial markets goal of restoring stability and lowering interest rates. But in doing so, QE may have sown the seeds for future instability and crises.
• QE had mixed to positive effects on the real economy in terms of output, aggregate demand, and restoration of employment.  However, there remain concerns about unaddressed structural issues, insufficient stimulation of investment, and continued deflationary pressures.
• QE more than likely mitigated income inequality in the U.S.  However, it is just as likely that QE exacerbated wealth and consumption inequality over the same period.
• QE has contributed to greater politicization of the Fed itself, a weakening of support for the central banking system, and a permanent alteration in the underlying distinctions between monetary and fiscal policy in the United States.