The Fed Is Driving a Policy of Easy Money

It all started on March 3, 2020. On that day, the Fed made the decision to lower interest rates by 50 basis points. This was a historic decision, since the last such significant cuts were made during 2008 crisis and on 9/11.

Many had quickly realized that the Fed was preparing the ground for an easy money policy.

Like most other central banks in the world, the Fed now routinely uses this type of policy.

The accelerating spread of the coronavirus around the world raised the uncertainty in the financial markets, which literally collapsed in the second week of March.

At the end of this week of historic decline for Wall Street, the Fed took the decision on March 15, 2020 to lower interest rates by 100 basis points to break the zero interest rate taboo. This unanimous decision was the logical continuation of the March 3, 2020 decision, and of the famous easy money policy to come.

Wall Street continued to fall the following week. The Fed’s interest rates cut to zero, as well as its historic decision to lower the reserve requirement rate for US banks to zero, was not enough to reassure the financial markets, which were crying out for a quantitative easing program.

The few hundred billion initially promised by the Fed was not enough in the eyes of Wall Street.

In response to the collapse of Wall Street, and the onset of a sharp slowdown in the U.S. economy, the Fed decided to go nuclear on March 23, 2020 by announcing an unlimited quantitative easing program.

Since then, nearly $6T has been injected into the banking system.