After six years of pumping money into the U.S. economy by buying up unwanted assets, the Federal Reserve officially ended quantitative easing on Wednesday.
Spurred by the collapse of financial markets in 2007-08, quantitative easing was three waves of the Fed binge-buying trillions of dollars of Treasuries and mortgage-backed securities.
Now, as the American economy seems to have largely, finally recovered (though unemployment figures may not actually as good as they’ve been reported to be), the Fed is calling it quits — for now.
How much did the Fed buy through the program?
More than $3 trillion worth of bonds — the chart below shows how the Fed’s holdings exploded over the past six years.
Some central bank figures, including St. Louis Federal Reserve Bank President James Bullard and former Federal Reserve Chairman Ben Bernanke, enthusiastically supported quantitative easing, with Bernanke claiming that the bond-buying program may have caused the private sector to create more than 2 million jobs between 2008 and 2010.
But others weren’t sold, and were glad to see quantitative easing go, with some worrying that by purchasing so many securities, the Fed was merely inflating another economic bubble.
Fed officials such as Philadelphia Fed President Charles Plosser and Richmond Fed President Jeffrey Lacker worry the new money the Fed created to buy bonds—more than $3 trillion through the three programs—could fuel excessive inflation when growth picks up or asset bubbles that could cause financial instability and potentially another crisis.
Mr. Lacker is among those particularly unhappy with the Fed’s purchases of mortgage-backed bonds in the latest program, saying it “tilts the playing field against borrowers in other economic sectors, such as businesses and renters.”
Others claimed that saying the Fed was “printing money” to purchase unwanted assets is an oversimplification.
As Forbes writer John Tammy put it:
[T]he Fed is not printing money. In fact, the Fed is doing much worse than that. In allocating $4 trillion borrowed from banks, it’s supporting the very government spending and housing consumption that got us into trouble to begin with. More to the point, the Fed is financing ongoing economic hardship through its expanded borrowing of bank reserves.
Instead of allowing the free market to correct and punish misallocations of resources, Tammy argued, the Fed’s quantitative easing performed a disservice to the American economy.
The program may be over for now, but Federal Reserve Chairwoman Janet Yellen has said that she wouldn’t rule out another round of QE if the economy worsens down the road.
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