The Federal Reserve is grappling with the worsening economic fallout of the COVID-19 coronavirus pandemic. Now, however, the US central bank is taking never-before-seen measures in implementing limitless quantitative easing. This demonstrates the growing need for central bank-less currencies such as crypto.
Federal Reserve will begin “unlimited” quantitative easing measures
This news came on March 24th, as the Federal Reserve tries to stabilize the financial markets. Growing economic uncertainty due to the accelerating spread of COVID-19 is prompting central banks around the world to take action. However, the Federal Reserve’s latest decision is arguably one of the most dramatic yet.
Specifically, the US central bank is now looking to implement quantitative easing without an upper cap. Some news outlets are describing this as “quantitative easing infinity”, as it effectively removes an upper limit on quantitative easing.
For those unfamiliar with the concept, quantitative easing (QE) – or “large-scale asset purchases” – is an unconventional monetary policy. Economists often refer to it as “printing money” in order to add money directly into the economy.
What is quantitative easing?
This is done by purchasing a specific amount of financial assets from financial institutions over a period of time. At the same time, this risks increasing inflation as it essentially floods the financial markets with money.
Now, however, the Federal Reserve is launching a massive quantitative easing program without a specific end date or figure. As such, this is essentially “quantitative easing forever”, as some observers put it.
Starting on Monday, March 23rd, the Federal Reserve will begin daily buying government bonds for $75 billion and mortgage-backed securities for $50 billion. This open-ended quantitative easing strategy will quickly balloon the Federal Reserve’s existing debt.
Quantitative easing without end in sight
However, that does not seem to faze the Federal Reserve, as it scrambles to inject liquidity into the markets. The S&P 500 index has fallen roughly 34% in the last 35 days. This stock market plummet has undone most of the last three years’ stock market gains.
Consequently, it would appear the Federal Reserve does not worry about the long-term consequences of “quantitative easing forever”. It risks undoing some of the most basic market mechanisms in the American economy, and by extension in the world.
As the Federal Reserve controls the literal “printing press” for the American dollar, it could also easily undo this debt. History has shown time and time again why simply increasing the money supply does not resolve systemic market issues.
Cryptocurrencies, on the other hand, lack a central bank and cannot receive a dramatic liquidity influx. Previously, many experts have said that quantitative easing could push more people towards crypto. In fact, the Federal Reserve’s “quantitative easing unlimited” might even prove to be one of the best arguments in favor of cryptocurrency adoption.