Is the Fed Paying Banks Not to Lend?

by Thomas L. Hogan
The American Institute for Economic Research

The Federal Reserve has added $2.6 trillion to the US economy since the start of 2020. These actions, along with recent fiscal spending programs, have caused many economists to worry about the risks of price level inflation and overheating of the economy, potentially sowing the seeds of future economic collapse.

The Fed conducted a similar expansion after the 2008 financial crisis. From 2008 through 2015, the Fed increased the supply of base money by $3 trillion through its repeated quantitative easing (QE) programs. Yet despite this massive expansion, the rates of inflation and GDP growth consistently undershot the Fed’s target for more than a decade.

One potential reason for the lack of economic activity is that the Fed is preventing economic growth by paying banks not to lend.

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