How the Fed’s “Unconventional Monetary Policy” Actually Impacts the Economy
By Featured Author
What has been the specific economic impact of post-2008 “unconventional monetary policy”?
Has it helped? Has it hurt? Neither? Both?
Today the official scorecard is in… which we reveal shortly.
First we glance at a different type of scorecard — the stock market. Today, for the fourth straight session, both the S&P and Nasdaq set fresh records. The Dow Jones also ended the day higher. Though still 2% off its January top… it has officially emerged from correction territory after more than six months in the wilderness.
Bears really have to whistle hard to keep their courage up these days. Trade wars… Turkey… skyshooting debt levels — nothing seems to matter now. We assume the gods are plotting… and biding their time.
But to the topic under discussion… Deutsche Bank has just released what it terms “a report card for unconventional monetary policy.”
“Unconventional monetary policy” of course refers to quantitative easing, zero interest rates, negative interest rates and the rest of the tools in the central banker’s deepening kit. Deutsche Bank examined their impact on several metrics of economic performance around the world. The telling results, as summarized by analyst Daniel Lacalle:
1. In eight of the 12 cases analyzed, the impact on the economy was negative
2. In three cases, it was completely neutral
3. It only worked in the case of the so-called QE1 in the U.S. and fundamentally because the starting base was very low and the U.S. became a major oil and gas producer.
In 11 of 12 instances… “unconventional monetary policy” proved either negative or insignificant. Torsten Slok, chief international economist at Deutsche Bank:
How do you evaluate if QE and negative interest rates are working?… The issue is if QE and negative rates have been supporting the economy…
The conclusion is that U.S. QE1 had an impact but in all other cases the impact of QE and negative interest rates has been insignificant. And in eight out of 12 cases, the economic impact has been negative.