Introduced as an emergency response to a severe fall in aggregate demand at the end of 2008 and the beginning of 2009, quantitative easing has since become the main policy tool of advanced-economy central banks. In principle, there is nothing wrong with this. Central banks have long bought and sold government bonds to influence the money supply. But the enormous scale of purchases during 2020 and 2021, in circumstances where the case for a substantial monetary injection was far from clear, led to concerns about its impact on inflation.
Inflation is what we now have: 5.4% in the U.S. and 2.5% in the U.K., with more to come. This acceleration of prices is more than central banks were expecting. Recently they’ve begun to backpedal on commitments to their strategy of “lower for longer,” made when low inflation was expected to continue almost indefinitely. That’s a start, but a deeper rethink of when and how to use QE is called for.