The Effectiveness and Efficiency of the New Public Policies

In this paper we deal with the recent (1995-2023) Federal Reserve operated monetary policies, which were two unprecedented and distinct monetary policy regimes. The inflation stabilization era (1995-2008) and the zero-interest rate era (December 15, 2008-December 15, 2015) and again (March 15, 2020-March 15, 2022). These different monetary policy regimes provided various outcomes for interest rates, financial markets, inflation, cost of living, employment, international trade, and real economic growth. Then, a new fiscal policy was imposed in 2021. Some of the important, but not so beneficial results are that monetary policy appears to be able to affect long-term real interest rates, risk, the prices of the financial assets (bubbles), inflation, and very little the real economic growth. The Fed’s interest rate target was set during these nine years at 0% to 0.25%. It has created a low level of long-term interest rates and the negative real rate of interest (cost of capital), due to double digit inflation. The evidence suggests that these public policies are not very effective; they have created a new bubble in the financial market, perpetuated inflation, a redistribution of wealth from risk-averse savers to banks and risk-taker speculators, and a huge social cost (bail-in and bail-out cost). This monetary policy has increased the risk (RP) to the risk-averse depositors by making the real rate of interest negative. The effects on growth and employment of both public policies (monetary and fiscal) were gradual, small, and questionable, due to exaggerated liquidity, outsourcing, unfair trade policies, the suspicious COVID-19 pandemic, liberalism, the obsession with the “environment”, new wrong ideologies, which increased the cost of production and generated enormous deficits and debts. Keywords: Monetary Policy, Central Banks and Their Policies, Money and Interest Rates, Financial Markets and the Macro-economy, Model Evaluation and Testing, Social Welfare