July 6, 2011

From Federal Reserve, Less Would Be More

Steven Horwitz

Senior Affiliated Scholar

With the end of quantitative easing and the spotlight on Ben Bernanke growing, economists await the next policy move from the Federal Reserve. Mercatus Center Senior Scholar Steven Horwitz says that there’s a growing consensus that more quantitative easing is a bad idea, but the next policy steps remain unclear.

“It would be a good sign if we get a policy shift toward letting interest rates rise a bit and a clear statement on no more quantitative easing,” said Horwitz.

Even if quantitative easing had some short-term benefit, we may end up wishing it hadn’t, says Horwitz. While some have pointed to a stock market boost as signs of the plan’s success, Horwitz disagrees.

“It’s not clear that the rebound of the stock market was caused by QE2,” he said. “If it was, that increase was not the result of real wealth and value being created, but rather the artificial stimulus caused by a short term boost from QE2. If there was artificial growth, it will not be sustainable and we’ll have the same boom and bust we saw last decade.”