On the link between the growth of the Federal Reserve’s balance sheet and inflation

Since the “Great Recession” began in late 2008, the Federal Reserve has responded decisively and aggressively in an attempt to contain economic malaise and spur growth. With the Federal Funds rate effectively pegged at zero, the traditional means of “easing” conditions vital to growth have been exhausted, and the Fed has been forced to resort to less conventional measures to spur activity. Chief among these have been Large Scale Asset Purchases (LSAPs), better known as quantitative easing. While many debate the efficacy of these policies, a clear outcome of the purchases has been unprecedented growth in the scale of the
Fed’s balance sheet, leaving the experts at Thornburg Investment Management to wonder about the eventual consequences for the real economy.