The Federal Reserve’s Relevance Test
The best that can be said for US monetary policy over the last few years is that it prevented the direst outcomes that could have followed Lehmann Brothers’ collapse. But no one would claim that lowering short-term interest rates spurred investment.
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NEW YORK – With interest rates near zero, the US Federal Reserve and other central banks are struggling to remain relevant. The last arrow in their quiver is called quantitative easing (QE), and it is likely to be almost as ineffective in reviving the US economy as anything else the Fed has tried in recent years. Worse, QE is likely to cost taxpayers a bundle, while impairing the Fed’s effectiveness for years to come.