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Short and long term interest rates in this case are for US Treasury Bonds that mature at different lengths of time. Short term bonds tend to have lower interest
by kamarg 8y ago
Short and long term interest rates in this case are for US Treasury Bonds that mature at different lengths of time. Short term bonds tend to have lower interest rates since you're taking less risk that your money will be tied up when the economy grows at a faster pace. If you invest in long term bonds and the economy hits a growth spurt, your money is stuck for a much longer period of time earning less interest than if you had invested in something other than that bond.
Edit: Missed the first question in your post. The Federal Reserve is essentially buying fewer Treasury Bonds when the bonds it currently holds matures. Instead of reinvesting the payoff + interest that it received for those bonds, it is now just taking that money and essentially keeping it out of circulation.
- achandlerwhite 8y agoI think he meant "balance sheet"
- 67_45 8y agoWhat is the goal of essentially reducing the amount of money in the economy?
- bwanab 8y agoTo reduce the heat in what could be an overheated economy. Many economists look at the employment rate as being too low which could signal inflation.
- kybernetikos 8y agoThis confuses me a little. Many things seem to be pointing towards inflation - worsening global trade climate, high employment, knowledge that economic difficulty will be met with printing etc. But if the market expects inflation then shouldn't long term rates be higher to offset the expected inflation?
- kamarg 8y agoMainly to prevent inflation from getting too bad. We've got very low unemployment (among those actively looking for work) and still have excess amounts of capital sloshing around combined with the tax breaks. They're trying to keep the economy growing at a steady pace instead of taking off like a rocket only to crash land later.