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Actually the Fed is well positioned to deal with a drop in demand for USD: it can make trillions of dollars disappear by adjusting its balance sheet. The recen
by dkjaudyeqooe 6y ago
Actually the Fed is well positioned to deal with a drop in demand for USD: it can make trillions of dollars disappear by adjusting its balance sheet.
The recent money creation has given them a lot of flexibility going forward. They now have a huge reserve that can be used to fight inflation without having to raise interest rates sharply.
- RobertoG 6y agoIf adding trillions of dollars in reserves (QE) are not inflationary because they don't act in the real economy, taking that trillions of dollars of reserves of the system is not going to be deflationary neither.
- dkjaudyeqooe 6y agoYes, all other things being equal, but that's the point isn't it? QE in a deflationary environment and QT in an inflationary one. QE was very much inflationary and cancelled out the deflationary environment. QT will do the same thing in the other direction.
- RobertoG 6y agoQE per se is not inflationary, the only thing that does is to increase the number of reserves in the system reducing the interest rate (cheaper lending) but that doesn't have really effect if nobody is borrowing. Fiscal policy is the level that you want to use for increasing/decreasing inflation. Somebody have to spend more in the economy if you want to see inflation.