Thursday, March 8, 2012
Federal Reserve Mulls New Bond-Buying Technique
This article is interesting as it explains how the FED plans to deal with a growing balance sheet. The US central bank is concerned that the expansion of their balance sheet by $2.3 trillion will spark increased levels of inflation. The FED is considering another technique of expansionary monetary policy called reverse-repo. This happens when the FED buys long term mortgages or treasury bonds then keeping that new money out of the economy by borrowing it back from investors for short periods. It will be interesting to see if the FED decides to implement this policy and if they do, what how well the predicted results match what actually happens.
Subscribe to:
Post Comments (Atom)
3 comments:
As mentioned in the article, the means of reverse-repos might be an alternative to create more money in the market. Also, it won’t cause a high inflation and therefore will be able to stable the economy. Moreover, as indicated from the February job report—more than 20,000 jobs were created during this month, the outlook of the economy is much better now. As a result, the investors will be more confident in the market and more likely to buy the bonds from the Feb. Nevertheless, the Feb might still want to be discreet. (As the debt problem is still severe now. To borrow more money might also cause a heavier burden for the future.)
The Fed is going to creating new money by purchasing long-term mortgage or Treasury bonds and then keeping that new money out of the economy by borrowing it back from investors for short periods....
Slang for this is reverse-repos, the effect would be the same as the Fed's Operation Twist.
I think this is a good idea, it will raise short term interest rates....
Post a Comment