Fears QE would lead to high inflation not supported by inflation expectation measures: Cleveland Fed

Neither professional forecasters nor the markets feared a looming inflationary environment at the start of QE or after, says Cleveland Fed economist

The Federal Reserve’s use of unconventional monetary policy tools, such as large-scale asset purchases, to provide stimulus to the economy in the Great Recession and subsequent slow recovery caused some to fear that high inflation would soon follow. But those fears of high inflation were not supported by survey or market measures of inflation expectations either at the time each round of quantitative easing (QE) was introduced or three and six months after their introduction, according to Federal Reserve Bank of Cleveland economist Mehmet Pasaogullari.

Regarding the possibility of an adverse effect on inflation over the long term, Pasaogullari shows that those fears have not materialized, six years after the start of the first round of the LSAP program. He notes that average inflation—as measured by the CPI, core CPI, PCE, and core PCE—was lower in the period from December 2009 to December 2014 than in the previous five decades.

Pasaogullari says each round of QE should be viewed as a response to very unfavorable economic conditions at a time when further stimulus to the economy could not be provided by means of the Fed’s conventional monetary policy tool, the federal funds rate, which had reached the zero lower bound.

Read Unconventional Monetary Policy Measures and Inflation Expectations

For more inflation-related data and analyses from the Cleveland Fed, check out Inflation Central.

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell, doug.campbell@clev.frb.org, 513.218.1892