Historical Echoes: This Is Your (Great) Grandparents’ Quantitative Easing

New York Fed Research Library

A recent Federal Reserve Bank of St. Louis essay by Richard Anderson reminds us that the Fed’s recent large-scale asset purchase (LSAP) programs have a precedent. Anderson says: “Few analysts recall . . . that this is the second, not the first, quantitative easing by U.S. monetary authorities. During 1932, with congressional support, the Fed purchased approximately $1 billion in Treasury securities.” After the Fed’s program ended in October 1933, the Roosevelt administration continued to expand reserves, using measures authorized by the Gold Reserve Act of 1934, including large gold purchases.

In his second fireside chat in May 1933, President Franklin Roosevelt defended the policies of the time, including quantitative easing, by saying, “It was clear that mere appeals from Washington for confidence and the mere lending of more money to shaky institutions could not stop this downward course. A prompt program applied as quickly as possible seemed to me not only justified but imperative to our national security. The Congress, and when I say Congress I mean the members of both political parties, fully understood this and gave me generous and intelligent support.  The members of Congress realized that the methods of normal times had to be replaced in the emergency by measures which were suited to the serious and pressing requirements of the moment.”

Of course, many current worries about LSAPs also surfaced during the first quantitative easing episode. Anderson says, “In 1936, as today, concern arose regarding inflation.  Then, the Fed’s exit strategy was higher statutory reserve requirements, infeasible today. Today, the Fed’s exit strategy includes increasing the remuneration rate on deposits at the Fed, offering banks term deposits at the Fed, and the use of repurchase agreements.”

For more about the recent experience with quantitative easing, see this discussion on the New York Fed’s education website, this Federal Reserve Board video, and the following recent Liberty Street Economics blog posts and speeches:

• • Just Released: Marking the End of LSAP 2

• • Will the Federal Reserve’s Asset Purchases Lead to Higher Inflation?

• • Will “Quantitative Easing” Trigger Inflation?

• • Did Unconventional Policy Responses to the Crisis Work? Evidence from a Cross-Country Analysis

• • How Much Will the Second Round of Large-Scale Asset Purchases Affect Inflation and Unemployment?

• • The Federal Reserve’s Asset Purchase Program (speech by Janet Yellen)

• The SOMA Portfolio at $2.654 Trillion (speech by Brian Sack)

Disclaimer
The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).