Recently, the US released first-quarter GDP data shockingly. The world's largest economy achieved a GDP of only $7.07 trillion in the latest statistical period, with an annualized month-on-month growth of just 1.6%, well below market expectations of 2.4%. This data not only exposed the weakness of the U.S. economy, but also triggered in-depth discussions on the direction of U.S. economic policy.
Lin Yifu, a well-known economist, pointed out that in recent years, in order to cope with the weak economy, the United States has adopted a quantitative easing policy, that is, to stimulate the economy by printing a large amount of money. This practice was widely questioned before 2008, as overprinting could lead to higher inflation and even a currency crisis. However, in the wake of the financial crisis, the Fed adopted an unprecedented accommodative monetary policy, injecting massive liquidity to alleviate the credit crunch and market panic.
However, does this practice really work? Judging by the current data, the answer does not seem to be promising. Weak GDP growth suggests that economic activity is not as buoyant as expected. At the same time, inflation continued to rise, with core personal consumption expenditure prices rising by 3.7% in real terms, much higher than forecasts. This stagflationary situation has not only made ordinary people feel the pressure of rising prices, but also worried investors and businesses about the future economic prospects.
So, why is this happening? The reason may be that the side effects of quantitative easing are gradually becoming apparent. First, printing large amounts of money leads to an oversupply of money, which in turn triggers inflation. Second, while accommodative monetary policy can stimulate economic growth in the short term, it may lead to structural imbalances and asset bubbles in the long run. Finally, such a policy could also lead to instability in the international monetary system, which in turn could lead to global economic problems.
Of course, we cannot deny the positive role of quantitative easing in times of crisis. In the aftermath of the financial crisis, it was the Fed's loose monetary policy that alleviated market panic and stabilized financial markets in a timely manner. However, this does not mean that we should rely on such policies to stimulate the economy for long. Instead, we should seek a more robust and sustainable approach to development.
Japan, for example, has adopted a similarly accommodative monetary policy after the "lost decade". However, these policies have not really solved the problem of Japan's long-term economic stagnation. Conversely, over-reliance on monetary policy has led Japan to fall into a "liquidity trap," in which even lower interest rates fail to stimulate economic growth. This teaches us a profound lesson: monetary policy is not a panacea, and over-reliance can be counterproductive.
To sum up, the sluggish GDP growth and rising inflation in the United States in the first quarter have once again triggered us to think deeply about economic policy. We should be aware that quantitative easing, while stimulating economic growth in the short term, can lead to a series of problems in the long run. Therefore, we should seek a more robust and sustainable way of development to achieve long-term prosperity and stability of the economy.