Helping consumers in a crisis
A new study shows that the central bank tool known as quantitative easing helped consumers substantially during the last big economic downturn — a finding with clear relevance for today’s pandemic-hit economy. More specifically, the study finds that one particular form of quantitative easing — in which the U.S. Federal Reserve purchased massive amounts of mortgage-backed securities — drove down mortgage interest rates, allowed consumers to refinance their house loans and spend more on everyday items, and in turn bolstered the economy. “Quantitative easing has a really big effect, but it does matter who it targets,” says Christopher Palmer, an MIT economist and co-author of a recently published paper detailing the results of the study. All told, the study finds, the Fed’s so-called QE1 phase from late November 2008 through March 2010, a part of the larger quantitative easing program, generated about $600 billion in mortgage refinancing at lower interest rates, bringing about...