Monday 22 May 2017

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

Some experts say that this way of thinking is not particularly good overall. Because the Fed's balance sheet consists largely of mortgage bonds expiring in terms of whether people will choose to pay their debts. As a result, the Fed may lose control of an important tool in its policy if a large percentage of Americans decide, surprisingly, to close their mortgage loans.
The question arises as to why the Fed will try to reduce its balance?
The very act, threatening future economic development and by itself, can have a destructive impact on the economy, which eventually leads to new stimulus measures, recession and a new balance.
Some experts argue that with its current record balance, the Fed will have difficulty reacting to future shrinking of the economy in the direction of its monetary policy. Changing the latter policy itself may, however, jeopardize the stability of the economy.
Overall, it can be said that the option of maintaining a neutral balance-sheet policy may be the better option for the Fed. What will happen, however, is yet to be seen.



No comments:

Post a Comment