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The main objective of monetary policy in any economy is to maintain stability. Central banks, such as the Federal Reserve (Fed,) Bank of England (BoE,) and the Bank of Japan (BoJ) were established for this purpose. However, some argue that certain policies, such as quantitative easing (QE,) may ultimately undermine this goal. While these policies may provide short-term economic stimulus, they may also lead to monetary instability in the long run, negating the very purpose of monetary policies in the first place. This article will examine some of these criticisms of quantitative easing in more detail.
High Inflation
The central bank’s aim is to keep inflation as low as possible, typically with a target of 2% to 3%, but QE has the opposite effect. QE increases the money supply by using new money to boost lending, which leads to inflation. There is limited data on the specific inflation caused by QE, as it is a relatively new policy, but evidence shows that it leads to asset inflation. This type of inflation has a negative impact on the cost of living. QE is often used in a struggling economy, where the initial effects of inflation can be positive, as it can stimulate growth, however when the economy recovers, it may become difficult to manage the later consequences of this stimulation. Therefore, QE can be seen as a temporary solution…
