Benefit and Cost Tradeoffs of Quantitative Easing

By Stephen Jen, SLJ Macro Partners LLP.

 "...the benefits of QE are temporary and the magnitude of the impact may be diminishing, while the costs are significant and have been accumulating. Investors presumably understand the benefits (e.g., positive for equity prices, and the low interest rates should be helpful for both indebted households as well as the government). The list of potential costs is long. The main ones include (1) persistent QE raises inflation risk over the medium term, (2) QE in the US has important negative side effects on other countries, (3) QE could lead to moral hazard problems such as delayed structural/fiscal reforms, and (4) QE could significantly elevate financial volatility."