Fed’s Asset Purchases Result in Increased Market Volatility

Jai Kedia

The Federal Reserve underwent a massive regime shift following the 2008 financial crisis. It incorporated several new tools into its monetary policy arsenal, ranging from interest on excess reserves to large‐​scale asset purchases (“quantitative easing”) to deal with the crisis. Unfortunately, as with most public institutions, power given is seldom relinquished.

As a recent Cato CMFA article noted, if the Fed is expected to massively increase its balance sheet in response to every major crisis...