4 ms·
These are debt instruments. If the Fed buys UST, MBS, etc from the market, those assets will be serviced over time and the money will return to the Fed.
by qeternity 4y ago
These are debt instruments. If the Fed buys UST, MBS, etc from the market, those assets will be serviced over time and the money will return to the Fed.
- JumpCrisscross 4y ago> those assets will be serviced over time and the money will return to the Fed The comment I responded to [1] posited the Fed needing to engage in extraordinary tightening. Waiting for the debt to be repaid would be insufficient in that case. (Also, defaults unbalance the equation.) In that case, the Fed would need to sell assets to draw cash out of the economy. My point was that if the Fed ran its balance sheet to zero, it would still have unlimited firepower in the form of slashing interest on reserves through zero, borrowing through repos and potentially even raising the reserve requirement. These are powerful tools. Too powerful for regular use, which is why the more-precise open market operations are preferred. TL; DR Running out of room to tighten is not a problem for a central bank. [1] https://news.ycombinator.com/item?id=31428385 https://news.ycombinator.com/item?id=31428385