January 26, 2009
Quantitative Easing Versus Credit Easing
By Wade Rousse
In this speech, Chairman Bernanke describes the Fed’s recent actions as “credit easing” rather than “quantitative easing.” The difference is that in a pure quantitative easing regime, policy makers specifically target the quantity of bank reserves. They do not focus on purchasing securities or directly increasing loans to financial institutions.
However, the Fed’s current approach can accurately be described as one that is making loans and purchasing securities. The idea is to continue actively managing the newly acquired mix of assets in a way that will favorably affect credit conditions for households and businesses. This is why the Chairman says that credit easing is a better term to explain the approach.
Therefore, even though the term “quantitative easing” is fun to say. You should be careful not to fling it out there when you’re explaining the Fed’s current monetary policy. “Credit easing” is a better description. For greater details, I strongly encourage you to read the speech.
Posted by Wade at January 26, 2009 5:51 PM
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