The long-term consequences of quantitative easing, or QE, have yet to be seen, and any short-term impacts are difficult to assess definitively. It is still likely, however, that the Federal Reserve's asset purchase plan has widely affected global markets. As economies become more integrated across different countries, the implementation of QE can create excess liquidity in emerging countries and international exchanges. While these effects can be described positively, it is speculative to make any normative assumptions about their aggregate influence.

The Fed's large-scale asset purchase program, or LSAP, filters through the banking sector in the U.S. Banks receive new money from the Fed, and the expectation is that banks create new loans with their extra reserves. Even though bank loans actually declined after the policy was implemented in 2008-2009, interest rates were kept low in the U.S. This, in turn, lowered interest rates across the globe.

In November 2013, the McKinsey Global Institute published a report on the distributional impacts of ultra-low interest rates and unconventional monetary policy. Its study suggests that policies by the European Central Bank, the Bank of England, the Federal Reserve and the Bank of Japan have primarily resulted in a reduction in the interest payments on government or corporate debt. Lower interest rates should also have made borrowing easier, but the data has yet to support this result.

The McKinsey Global Institute also found that households in the U.S. and the Eurozone lost some $630 billion from low interest rates on deposit accounts and fixed income investments. Some of those lost funds could have ostensibly been used to purchase additional assets or drive up the profits of companies providing consumer goods. Yet, many market indexes in the U.S. and elsewhere have posted record highs, which seems to indicate some of the activity resulting from QE has pushed up the prices of financial instruments.

Any impacts on developing markets is even more difficult to assess. Many developing markets trade using currency from Europe and the U.S., and many more rely on Western investments. Some monetary liquidity likely transfers to developing nations, which could prove to be a boon to emerging markets.

There are geopolitical ramifications as well. Concerns about inflation and reckless Fed policy have been espoused by many who rely on the U.S. dollar as a reserve currency. The so-called BRIC nations, Brazil, Russia, India and China, have announced intentions of challenging the international reserve hegemony of the dollar. This creates possibilities for movement in forex markets and banking.

It is possible that there are other, potentially more significant impacts on the global economy as a result of the Fed's easy-money policies. What is certain is that all markets have been affected by liquidity injections, artificially low interest rates, increased government spending and a propped-up commercial banking sector. Monetary policy on this scale has never been attempted, and this makes consequences challenging to predict.

  1. How does quantitative easing in the U.S. affect the stock market?

    Read about the impacts of quantitative easing, or QE, on prices in the stock market, and learn some of the possible implications ... Read Answer >>
  2. How can quantitative easing be effective in the economy?

    Take a deeper look at the impacts of the Federal Reserve's large scale asset purchase plan, better known as quantitative ... Read Answer >>
  3. How does quantitative easing in the U.S. affect the bond market?

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  4. In what instances is quantitative easing used?

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