Quantitative Easing, Inflation, and Federal Reserve Complicity

The recent surge in consumer prices beginning in 2021 has been attributed by government officials to supply chain disruptions, war in Ukraine, the coronavirus pandemic, and corporate greed. Between 2008Q4 and 2021Q1 the consumer price index (CPI) increased 32 percent from about 211 to 280. During this same period, the Fed’s balance sheet increased from $2.4 trillion to $8.8 trillion. The analysis presented in this paper indicates that an inflation-asset elasticity of 0.069 accounted for about 10 percent of the of the of the 33 percent overall increase in consumer prices between 2008Q4 and 2021Q4. Although supply-chain and market disruptions were contributing factors, the Fed’s low-interest-rate policy and quantitative easing was a significant driver behind the increase in consumer prices.