Addressing QE Asset-Driven Inflation and the Limits of Monetary Policy

Quantitative easing (QE) has been a key tool for managing liquidity and stimulating the U.S. economy. However, large-scale asset purchases have led to substantial liquidity in financial markets, driving asset price inflation, higher housing costs, and elevated costs for businesses, which indirectly contribute to general inflation through demand-shift and cost-push channels.While traditional tools such as quantitative tightening (QT) and interest rate hikes can help, they are limited in effectiveness and carry significant trade-offs, including slower economic growth and increased costs for the Federal Reserve (via Interest on Reserves (IOR) and Overnight Reverse Repo (ON RRP) payments).This paper explores monetary policy limitations and proposes fiscal measures, as a complementary tool to reduce excess liquidity, moderate asset-driven inflation, and strengthen fiscal sustainability.