Subcommittee Discusses International Impacts of Quantitative Easing
January 10, 2014 -
The Federal Reserve’s quantitative easing policy has led some foreign nations to engage in currency manipulation and erect trade barriers to protect their own economies, members of the Monetary Policy and Trade Subcommittee discussed at a hearing yesterday.
“Both not only curb global commerce, but also directly disadvantage U.S. manufacturers producing goods for export,” said Subcommittee Chairman John Campbell (R-CA). “If our trading partners are justifying these harmful policies by citing as ‘Exhibit A’ the headache created for them by U.S. monetary policy, then U.S. companies and their workers will be innocent victims in a dangerous race to the bottom.”
When the Federal Reserve pushes interest rates to zero, investors turn to international markets for high returns. In turn, the exchange rates of these foreign counties change dramatically. They see the immediate effects of this through asset bubbles and price inflation. As a result, the markets of our trading partners are less stable and more challenging for U.S. exporters.
As several members of Congress have done, many foreign governments have asked that the Federal Reserve be more transparent about its plans to exit its quantitative easing strategy.
“Regarding Federal Reserve monetary policy actions, anything that makes them more predictable will, all else being equal, attenuate market volatility globally,” said Dr. Benn Steil, Senior Fellow and Director of International Economics for the Council on Foreign Relations.
“While the Federal Reserve has announced it will begin tapering its purchases this month, the exit strategy from QE3 and the unwinding of its $4 trillion balance sheet is far from clear. Given the problems that uncertainty surrounding the Federal Reserve’s tapering strategy created last year, it is my hope that incoming Chairman Janet Yellen and the rest of the Federal Open Market Committee see value in being forthcoming and transparent in the future,” added Campbell.
Yesterday's hearing was part of the Financial Services Committee’s “Federal Reserve Centennial Oversight Project.” The project is an aggressive series of hearings marking the 100th year of the Federal Reserve. The oversight project is expected to culminate with the development of legislation to reform how the nation’s central bank operates.