LONDON – In the run-up to the Federal Reserve Bank of Kansas City’s annual symposium in Jackson Hole, Wyoming, last month, the discussion had focused on whether monetary policy should be tightened in response to higher US inflation. By suggesting that asset purchases would be tapered first, and that interest-rate increases would come much later, Fed Chair Jerome Powell has shifted the conversation to the question of how policy should be tightened.

While printing money to buy bonds and reduce long-term interest rates is justified during crises like those in 2008 or 2020, the case for maintaining quantitative easing (QE) in more tranquil times is far from obvious. To see why, it helps to dispel three misconceptions about QE.

The first misconception is that QE is a monetary policy. It is not. Or rather, it is not just that. It is also a fiscal policy. In every country, the central bank is owned by the treasury. When the Fed issues money – central bank reserves, in fact – to buy a government bond, the private sector is getting one government liability in exchange for another.

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Andrés Velasco, a former presidential candidate and finance minister of Chile, is Dean of the School of Public Policy at the London School of Economics and Political Science. He is the author of numerous books and papers on international economics and development, and has served on the faculty at Harvard, Columbia, and New York Universities.