The Federal Reserve gets blamed for almost anything. But the fact is, the Fed’s policies helped generate an economic recovery starting in 2009, followed by GDP growth for five years running, despite a long list of headwinds: declining home prices, deleveraging, weak employment, low confidence. On the other hand, the more hawkish European Central Bank’s policy ended in disaster. The ECB reduced the size of its balance sheet by selling bonds in 2012-13 (the red line on the chart), and now faces stagnation in many eurozone countries and high unemployment (above 10% in France and Italy, for example).
The severity of the 2008-09 recession was second only to the Great Depression, and required unconventional policies to “right the ship.” Granted, doing something that has never been done before, at this scale, is unnerving – not only to individual investors but to experts as well, including distinct professors and asset managers. In my opinion, the Fed’s execution since 2008 has been flawless. With the economy gaining strength, the Fed ended its QE program in October, and we can count on it to “finish its job” of removing the zero-rate policy this year.
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Chart sources: Economagic, Model Capital Management. Note: amounts are in local currencies, and are not to scale.