As the US economy grows, America’s Federal Reserve is trying
to keep inflation in check by raising interest rates. One of the methods to
achieve higher interest rate is through selling some of the assets acquired
during and after the 2008 financial crisis under the policy, quantitative
easing (QE). However, the effects of unwinding the effects of QE are uncertain
and the Fed wants something that is predictable. An alternative is to see the
bonds run off and collect the money when they are mature while reducing or
halting further investment.
3 comments:
It will be interesting to see if another big player comes into the secondary market to buy up these types of assets when the FED trims their buying, or if it will result in higher costs for home-buyers.
I think the article made a particularly interesting point in that some economists are arguing that the Fed should simply "hold on" to these assets, because their holdings are so massive. However, I think it would indeed be wise to go the slow and steady route, particularly given our current and extremely tense geopolitical environment.
In a more recent article I read that The US Federal Reserve is expected to keep its federal funds target range unchanged in May after data showed that the US economy grew at its slowest pace in three years in the first quarter of 2017 in which we saw President Trump's attempt for sweeping change not have the desired effect he expected to see in his first 100 days. Economists expect policymakers to acknowledge the slowdown in growth, which included consumer spending rising at its weakest rate since the financial crisis. However, with the economy already close to full employment and signs that wage growth is picking up, policymakers could also signal that they remain on course to tighten policy in June. It'll be interesting to see what happens this summer.
Post a Comment