THE FEDERAL RESERVE’S MONETARY POLICY AND ITS EFFECTS (2008-2020): AN AUSTRIAN PERSPECTIVE
This paper aims to describe, according to the Austrian School of Economics, how the monetary policies adopted by the Federal Reserve since 2008 (Quantitative Easing - QE, Qualitative Easing - QL and Zero Percent Interest Rate Policy - ZIRP) prolonged the mismatches in resource allocation, made the US economy weaker (individuals and companies became more dependent on artificially low interest rates) and increased the risks and leverage in the financial market. It is argued that, after the adoption of these policies, the Fed would not be able to normalize monetary policy, which was confirmed in 2019, when the Fed began to cut the Federal Funds Rate (FFR) and did QE, and, mainly, in 2020, when it returned to ZIRP and did a bigger QE. It is concluded, therefore, that the Fed makes the economy weaker and increases the financial market’s leverage. The real economy is harmed, while the financial market (large publicly traded companies and financial institutions) and the government (which increases its spending and indebtedness) are benefited.
Keywords: Austrian School of Economics, United States, Central Banks, Federal Reserve, Monetary Policy, Economic Cycles.
JEL Classification: E14, E32, E43, E44, E52, E58, E62, H60.
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