QE Criticized as Wealth Gap Driver

Quantitative easing (QE) first emerged in Japan in the early 2000s as a novel monetary policy to combat deflation. It became a central pillar of economic policy in the U.S. and Europe following the 2008 financial crisis, when central banks had already slashed short-term interest rates to near zero. The scale of these programs has been massive. The U.S. Federal Reserve's balance sheet, for instance, ballooned from under $1 trillion in 2008 to $4.5 trillion by October 2014. Subsequent rounds of QE, notably in response to the COVID-19 pandemic, pushed it to a high of about $8.9 trillion. Similarly, the Bank of England's QE program reached a peak of £895 billion. This injection of new money disproportionately flows to those closest to the financial system, an idea known as the Cantillon Effect. Financial institutions and existing asset holders are the first to receive the new liquidity, which they can then use to purchase more assets before the broader public feels the inflationary effects. This mechanism often leads to the inflation of financial assets like stocks and real estate, while wages for the average person may not keep pace. The impact on asset prices is significant. Studies have shown a correlation between QE programs and rising stock markets, such as the S&P 500. In the housing market, QE is designed to lower long-term interest rates, making mortgages more affordable and thereby boosting demand and prices. The Fed's purchase of mortgage-backed securities during the COVID-19 pandemic, for example, coincided with a massive increase in home prices. During periods of significant QE, wealth inequality has tended to widen. In the U.S., the share of wealth owned by the top 1% reached a record 31.7% in the third quarter of 2025. This is up from 22.8% in 1989. While the wealthiest have seen their net worth grow, the bottom 50% of Americans have experienced almost no net wealth growth since 1989. Central banks have also expanded their asset purchases beyond government bonds. The Federal Reserve, for instance, implemented programs to buy corporate bonds, including those from riskier corporations, to support credit markets during the COVID-19 pandemic. The Bank of England also purchased £20 billion in UK corporate bonds as part of its QE measures. As central banks begin to reverse QE through a process known as quantitative tightening (QT), they are selling the assets they accumulated. This process involves reducing the size of their balance sheets and can lead to upward pressure on long-term interest rates. The Bank of England, for example, has been actively selling some of the government bonds it holds. Alternatives to QE have been proposed to stimulate the economy without exacerbating inequality. These include "People's QE" or "helicopter money," which would involve direct cash transfers to households to boost spending in the real economy rather than primarily in financial markets. Other suggestions include government-financed infrastructure projects or targeted tax rebates.