The long shadow of quant­it­at­ive eas­ing

Cent­ral banks are attempt­ing to unwind the massive pur­chases of bonds and other assets in the face of grow­ing polit­ical anger at the scale of losses. Will the con­tro­versy limit their options for future crises?

By Sam Flem­ing, Claire Jones and Olaf Storbeck · 8 Oct 2025

The Fed­eral Reserve has endured a bar­rage of insults from the Trump admin­is­tra­tion, but a new line of attack opened up last month when the Treas­ury sec­ret­ary him­self accused it of presid­ing over the mon­et­ary equi­val­ent of a lab-cre­ated virus out­break

iting in The Inter­na­tional Eco­nomy magazine, Scott Bes­sent com­pared the “extraordin­ary” mon­et­ary policy tools used by the Fed after the fin­an­cial crisis to sci­entific research that has gone awry. “[Lab exper­i­ments] can wreak havoc in the real world,” he said. “Once released, they can­not eas­ily be put back into the con­tain­ment zone.”

In Bes­sent’s argu­ment, it was unac­cept­able “mis­sion creep” for the Fed to use massive pur­chases of assets to stim­u­late growth, the policy known as quant­it­at­ive eas­ing. Instead, he wrote, the cent­ral bank needs to return to a far sim­pler toolkit.

His com­plaints about dis­tor­tions stem­ming from large-scale asset pur­chases mir­ror warn­ings from Kevin Warsh, a former Fed board mem­ber and one of the lead­ing can­did­ates for the next chair, who argued in April that bond-buy­ing had become a “near-per­man­ent fea­ture of cent­ral bank policy and power” and was fos­ter­ing irre­spons­ible fiscal policy.

QE has been con­tro­ver­sial since the start — from when cent­ral banks first star­ted buy­ing assets in the after­math of the global fin­an­cial crisis all through the next dec­ade and bey­ond as the policy con­tin­ued, with occa­sional pauses, until 2022.

But the new attack on QE, includ­ing from the US Treas­ury depart­ment, comes at a par­tic­u­larly acute time for cent­ral banks.

Since 2022, the Fed and sev­eral other cent­ral banks have been unwind­ing some of those pur­chases by selling them or let­ting them expire — a pro­cess known as quant­it­at­ive tight­en­ing.

This was always going to be a fraught exer­cise, give the poten­tial for losses in some coun­tries which have to be picked up by tax­pay­ers, or for the bal­ance sheet run­down to have an impact on interest rates.

But now cent­ral banks find them­selves shrink­ing their hold­ings in the face of fierce cri­ti­cism of their con­duct from rightwing pop­u­list politi­cians, some of whom openly want to exert more polit­ical con­trol over mon­et­ary policy decisions.

In the US, the inde­pend­ence of the Fed is being aggress­ively chal­lenged by the admin­is­tra­tion. Pres­id­ent Don­ald Trump is try­ing to fire Lisa Cook, one of the Fed board mem­bers, and has cri­ti­cised its chair Jay Pow­ell, whose term ends next year, for being too slow to reduce interest rates.

The fiscal costs stem­ming from the effort to unwind those policies are prov­ing par­tic­u­larly explos­ive in the UK — where the upstart Reform party is openly attack­ing the Bank of Eng­land over losses on its bond-buy­ing pro­gramme.

“The unrav­el­ling of cent­ral bank entan­gle­ments with gov­ern­ment debt was going to be com­plic­ated in the best of cir­cum­stances,” says Eswar Prasad, an eco­nom­ist at Cor­nell Uni­versity. “These are clearly not the best of cir­cum­stances eco­nom­ic­ally or polit­ic­ally.”

Some of the com­plaints about QE have broad res­on­ance among eco­nom­ists. There are legit­im­ate argu­ments that the policy was taken too far in the years fol­low­ing the crisis — and par­tic­u­larly in the wake of the pan­demic.

To crit­ics, the massive bal­ance sheets held by cent­ral banks have inflated asset price bubbles, fostered inequal­ity, led to mis­al­loc­a­tion of cap­ital and masked unsus­tain­able pub­lic fin­ances.

Some eco­nom­ists see a risk that polit­ical anti­pathy could con­strain cent­ral banks when the next eco­nomic crunch strikes, leav­ing poli­cy­makers with fewer options. At the very least, say some, cent­ral banks need to come up with a bet­ter set of guidelines to ensure they only ever use QE in the direst of emer­gen­cies.

Vin­cent Rein­hart, the chief eco­nom­ist at BNY Invest­ments, co-authored two research papers on QE with former Fed chair Ben Bernanke

did not include a sec­tion on how to get out of the policy or the risks stem­ming from it,” he says. “That was a mis­take — it was a lot stick­ier than I thought going in and has opened up a range of com­plic­a­tions and poten­tial polit­ical influ­ences on mon­et­ary policy.”

Sushil Wad­h­wani, a former Bank of Eng­land poli­cy­maker, says he was sup­port­ive of ini­tial rounds of QE, which in the UK began in 2009, but that the tool was used to excess dur­ing the after­math of the pan­demic with costly res­ults for the pub­lic fin­ances as it is unwound.

“They over­stayed their wel­come,” he says. “It is sad because it has poisoned the polit­ical eco­nomy against using this weapon.”

The use of cent­ral bank bal­ance sheets in fin­an­cial crises is far from a nov­elty — it has a his­tory dat­ing back hun­dreds of years. At the end of the Seven Years’ War between Eng­land and France in the 18th cen­tury, for example, the Bank of Ams­ter­dam (apre­cursor to mod­ern cent­ral banks) assumed a lender-of-last-resort func­tion after a panic struck the local fin­an­cial mar­ket.

The Bank of Eng­land had mul­tiple for­ays into lender-of-last resort oper­a­tions in the 19th cen­tury, includ­ing the “Black Fri­day” sparked by the fail­ure of Over­end Gurney, the largest dis­count house in the City of Lon­don, in 1866.

But the explo­sion in the size of G7 cent­ral bank bal­ance sheets in the past dec­ade and a half marked a his­toric depar­ture from more tar­geted inter­ven­tions dur­ing fin­an­cial crashes.

While the ini­tial phase of the cent­ral bank response was about emer­gency liquid­ity to the fin­an­cial sys­tem in response to the Leh­man Broth­ers crash, the goals quickly widened to prop­ping up entire eco­nom­ies and fend­ing off defla­tion.

As con­ta­gion spread, cent­ral banks con­duc­ted an unpre­ced­en­ted series of exper­i­ments, includ­ing pur­chases of pub­lic and private sec­tor assets, “for­ward guid­ance” point­ing to pro­longed low rates, and in some areas neg­at­ive interest rates.

Bernanke acknow­ledged in his book The Cour­age to Act in 2015 that his use of QE as Fed chair was “prob­ably the most import­ant and def­in­itely the most con­tro­ver­sial tool we would employ” as the cent­ral bank, start­ing in 2008,hoovered up hun­dreds of bil­lions of dol­lars in assets via so-called large-scale asset pur­chases.

The BoE in 2009 fol­lowed suit by unleash­ing its own gov­ern­ment bond pur­chases, and its gilt hold­ings ulti­mately peaked in 2022 at £875bn. The ECB star­ted later but pur­chased a port­fo­lio of mostly gov­ern­ment bonds that was worth around €5tn at its peak — equi­val­ent to more than a third of Euro­zone GDP.

Asset hold­ings of a host of advanced eco­nomy cent­ral banks includ­ing those of the G7 peaked in 2021 at a median of nearly 70 per cent of GDP, accord­ing to the Bank for Inter­na­tional Set­tle­ments — five times the level 20 years earlier.

The appet­ite of cent­ral banks to “print money”, as the policy was often described, was polit­ic­ally com­bust­ible from the very begin­ning. In the US Sen­ate, for example, pur­chases of gov­ern­ment bonds were seen on the right as a dan­ger­ous innov­a­tion that could foster high infla­tion and stoke up fresh asset price booms.

Repub­lican Ken­tucky sen­ator Jim Bun­ning lam­basted Bernanke in a hear­ing on Cap­itol Hill in late 2009, accus­ing him of “sow­ing the seeds for the next bubble” and fail­ing to cook up an exit strategy from “all the money you have prin­ted and the secur­it­ies you have brought”.

On both the left and right, politi­cians argue that by inflat­ing asset val­ues the Fed’s policy has exacer­bated inequal­it­ies between those on low incomes and Amer­ic­ans who are sit­ting on large stock­piles of equit­ies.

A staff paper by the Fed­eral Reserve Bank of New York last year found that uncon­ven­tional mon­et­ary policies such as QE reduced inequal­ity within the bot­tom 90 per cent by lower­ing unem­ploy­ment, but that they also widened the income gap between the top 10 per cent and the rest by rais­ing profits and equity prices.

Anger dir­ec­ted at the Fed only intens­i­fied in the wake of the pan­demic, at a time when infla­tion was a grow­ing danger. Growth in the con­sumer price index ulti­mately peaked at just over 9 per cent in the US in 2022 before it sub­sequently sub­sided.

For all the con­tro­versy that has sur­roun­ded QE, however, Bes­sent’s attack on the Fed this year marked the first time a sit­ting Treas­ury sec­ret­ary has launched such a dir­ect and open assault on the cent­ral bank’s expans­ive mon­et­ary oper­a­tions.

In his view, QE stoked up inequal­ity, blurred the lines between fiscal and mon­et­ary policy and dam­aged inde­pend­ence. He called on Pow­ell to “com­mit to scal­ing back its dis­tor­tion­ary impact on mar­kets”.

Wa e former Fed board mem­ber, lev­elled sim­ilar charges at a spring event held by the Group of 30 — a global body of fin­an­ci­ers and aca­dem­ics — accus­ing the Fed of becom­ing “a gen­eral-pur­pose agency of gov­ern­ment” rather than a nar­row cent­ral bank, con­trib­ut­ing to an explo­sion of fed­eral spend­ing by lap­ping up vast quant­it­ies of gov­ern­ment bonds. The com­ments were met with rap­tur­ous applause.

The polit­ical heat sur­round­ing QE has been rising in the UK as well. The Bank of Eng­land is the tar­get of polit­ical oppro­brium because of the losses being incurred as it unwinds QE. These are hit­ting tax­pay­ers because the UK Treas­ury has to indem­nify the BoE for losses as it runs down its bal­ance sheet.

In a meet­ing with Andrew Bailey, the BoE gov­ernor, Nigel Far­age, the head of the Reform party, and his deputy Richard Tice com­plained about the scale of fiscal losses. In a let­ter ahead of the Septem­ber 25 meet­ing, Tice told Bailey that

e BoE was “unne­ces­sar­ily wast­ing tens of bil­lions of pounds of tax­pay­ers’ money, ile enrich­ing City insti­tu­tions.” The Office for Budget Respons­ib­il­ity watch­dog estim­ated in March that the UK would see a cumu­lat­ive net life­time loss of £133.7bn asa res­ult of the BoE’s bal­ance-sheet run­down, accord­ing to pro­jec­tions run­ning to 2033.

Faced with high UK gov­ern­ment bond yields and anxious investors, the BoE slowed its bal­ance-sheet reduc­tion at its latest rate-set­ting meet­ing in Septem­ber in a bid to “min­im­ise” the impact of the pro­gramme on bond mar­kets.

But this decision was highly divis­ive within the Mon­et­ary Policy Com­mit­tee. Huw Pill, the BoE’s chief eco­nom­ist, warned the cent­ral bank should not be attempt­ing to address struc­tural chal­lenges in gov­ern­ment debt mar­kets via its oper­a­tions.

“It is when respons­ib­il­it­ies are blurred that poli­cy­maker account­ab­il­ity and inde­pend­ence are most at risk,” he said.

In the Euro area, the fiercest oppos­i­tion to QE has con­sist­ently come from Ger­many. In 2011, former Bundes­bank chief eco­nom­ist Jürgen Stark resigned as ECB chief eco­nom­ist over his oppos­i­tion to the cent­ral bank’s first bond buy­ing dur­ing the Euro crisis.

Con­ser­vat­ive poli­cy­makers from 2015 repeatedly filed motions to Ger­many’s con­sti­tu­tional court to stop the ECB’s asset pur­chases, arguing that the cent­ral bank was over­step­ping its man­date.

In a con­tro­ver­sial 2020 rul­ing, the con­sti­tu­tional court decreed that the pur­chases were par­tially illegal. After the EBC star­ted to unwind its bond pur­chases in 2023, the pub­lic dis­cus­sion about the mat­ter died down.

As Bes­sent winds up the inter­view pro­cess for the long­list of can­did­ates to replace Pow­ell as Fed chair in May 2026, the topic of cent­ral bank­ing over-reach remains at the top of his agenda, accord­ing to people famil­iar with his think­ing.

Some of those inter­viewed for the role said the Treas­ury sec­ret­ary is stick­ing closely to the script out­lined in his Inter­na­tional Eco­nomy art­icle, press­ing for their views on whether they sup­por­ted a smal­ler bal­ance sheet or if they believed that QE had benefited the wealthy at the expense of every­one else.

Yet while some at the Fed are open to a review of whether or not QE could be improved upon in future, they regard the tool itself as an essen­tial means of stav­ing off col­lapses in eco­nomic and fin­an­cial con­fid­ence.

John Wil­li­ams, head of the power­ful New York Fed, has dis­puted Bes­sent’s asser­tion in the art­icle that the QE-era Fed oper­ated as a hyper-con­fid­ent “cent­ral plan­ner” with “power­ful new tools” with mys­ter­i­ous effects.

“These are not ‘emer­gency’, ‘crisis’ or ‘break-the-glass’ policies, but those that are well within the long tra­di­tion of mon­et­ary the­ory and prac­tice,” says Wil­li­ams.

Don­ald Kohn, Fed vice-chair from June 2006 to 2010, says QE could have been imple­men­ted more effect­ively, “but the coun­ter­fac­tual would have been even worse”.

Influ­en­tial fig­ures on Cap­itol Hill stress they would be sup­port­ive of QE in future— although only if it is used in highly tar­geted cir­cum­stances.

The US Treas­ury sec­ret­ary’s tirade against gov­ern­ment bond-buy­ing by the Fed is seem­ingly at odds with Trump’s repeated calls for the US cent­ral bank to slash his admin­is­tra­tion’s bor­row­ing costs. Both Bes­sent and the US pres­id­ent say this can be accom­plished with cuts to short-term interest rates, a strategy many eco­nom­ists doubt will work, given the import­ance of longer-term bor­row­ing costs for the US gov­ern­ment.

And by presid­ing over sur­ging gov­ern­ment debt, the White House is only intensi­fy­ing the pres­sure on the cent­ral bank given the risk of fresh out­breaks of upheaval in gov­ern­ment bond mar­kets, which could force it to inter­vene.

“It is prac­tic­ally impossible for a cent­ral bank to escape polit­ical oppro­brium when it is try­ing to scale back its bal­ance sheet, because it has fiscal and polit­ical implic­a­tions,” says Prasad at Cor­nell.

The attacks on cent­ral bank asset pur­chases have the poten­tial to make uncon­ven­tional mon­et­ary policy more polit­ic­ally charged in the future.

Some ana­lysts argue that greater cau­tion would be well mer­ited in future. DeAnne Julius, a former mem­ber of the BoE’s poli­cy­mak­ing com­mit­tee, once warned that QE was like an extramar­ital affair — easy to get into but very hard to extract one­self from.

Erik Brit­ton, a former BoE eco­nom­ist who runs con­sultancy Fathom, agrees that cent­ral banks should only use QE in the most dire of emer­gen­cies — a les­son he says has been lost in the past dec­ade.

“If you do it, get out again quickly. You don’t want to be apply­ing shots of adren­aline to the patient for 15 years,” he says.

While Kohn, the former Fed vice­chair, acknow­ledges QE in the pan­demic era las­ted too long, he thinks that cent­ral banks will turn to bond buy­ing again in the event of a major crisis.

“You can’t sit there and let the eco­nomy go down the toi­let.”