Since the start of the Federal Reserve’s quantitative easing program in November 2008, low interest rates have stoked economic growth and added jobs to the economy, but with mixed effects on inflation. Equity markets* have returned 14% on an annualized basis, with most measures reaching multiple record highs and inflation as the main metric that has not behaved as expected.
As advertised: Since QE began, the Fed’s balance sheet has grown by about $2.5 trillion as 10-year Treasury rates dropped about 155 basis points. The demand drove bond prices with the idea that the influx of cash would be loaned out to spur growth, jobs and inflation.
Mixed results: The economy is better than it was at the start of QE, but GDP growth has been volatile and inflation has failed to reach its target. Much of the low inflation can be tied to falling energy prices, and spotty consumer confidence has driven volatile GDP periods.
Trial run: 2013’s taper announcement surprised the market, raising long-term rates and sending equities higher. At the time, GDP growth was below current levels, but with lower inflation and higher unemployment.
Lessons learned: In reaction to 2013’s taper, rates jumped for the rest of the year with a flight to risk, boosting equities. Debt markets recovered in 2014, suggesting that a more orderly path to unwinding won’t be as dramatic.
*Russell 3000 Total Return. Sources: Federal Reserve Bank of St. Louis,