Sunday 21 May 2017

Fed on its way to $2 trillion mistake? (1)

Later this, or early next year, the Fed is expected to resort to a strange maneuver - a reduction in the balance of holdings of US bonds.
The securities were bought over the last decade to "pump the liquid" into the market, stimulating the economy, lending and low interest rates.
What, however, will mean a reduction in the Fed's balance sheet?
In general terms, the reverse of the process of buying of government bonds during the crisis or liquidity out of the market. In itself, the action will lead to an increase in interest rates.
The decrease is expected to be high. The Fed's current asset balance is at more than $4 trillion, and according to some experts it is appropriate to cut it by half, or about $2 trillion, over the next few years.
The Fed's plans are to gradually reduce the balance by simply not renewing current bonds at their expiration.


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