Quantitative Easing Policy by FED
Quantitative Easing was a strategy established by the central banks to take care of the economy as an alternative to other financial tools used in the economy. QE is the supplementary monetary policy which is used when other monetary policies in an economy have failed or rather become ineffective (Brown, 2015). Quantitative Easing is basically where the Federal Bank buys financial assets from commercial banks with an aim of raising their prices and lowering their yield in the short-run while at the same time increasing their lending power and hence lowering the interest rates. This thus increases the money flow in the economy.
In the most recent QE undertaking by the Federal Bank, various reasons and claims were given to support their actions which include: Firstly, Ben Bernanke argued that QE has improved the rate of job creation in the private sector to a tune of billion (O'Connor, 2014). It was also argued that in short span economic activities improved with 3%. QE was also credited with having prevented the enormous disaster which would have thrived from the 2008 depression. Some of other convictions for this include lower interest rates for the corporate bonds and mortgage rates, high stock market valuation and high rate of GDP growth (O'Connor, 2014).
More so, QE impacts positively to the financial affairs of companies in an economy. To begin with, companies can expand due to increased money supply in an economy with the lower borrowing rates. Currency devaluation is also an advantage to the exporters in an economy. Through it impacts negatively to the importers and the creditor companies; it is of much benefit to the expanding companies, debtors and the exporters in an economy (Hausken & Ncube, 2013). This is highly beneficial since it reduces the cost of capital as the lending rates decrease.
References
Brown, B. (2015). The Global Monetary Plague': Asset' Price Inflation and Federal Reserve Quantitative Easing'. Basingstoke: Palgrave Macmillan.
Hausken, K., & Ncube, M. (2013). Quantitative Easing and Its Impact in the US, Japan, the UK and Europe. New York, NY: Imprint: Springer.
O'Connor, D. E. (2014). Deciphering economics: Timely topics explained.
