2 ms·

I am ignorant. How does the Fed unwinding its balance sheet and raising it rates affect things in the real economy like consumer demand/spending, unemployment,

• dragonwriter 4y ago
  In simple terms, all those things make borrowing more expensive, reducing effective money supply and aggregate demand, slowing the economy (and inflation), while loose money policies do the opposite. That's pretty much the whole point of Fed monetary policy, balancing the desire for price stability (low volatility) and low inflation with that for full employment by moving the right money vs. loose money lever. (Fine tuning distributional impacts is not their job, but retained by Congress which has more levers to pull, but unfortunately Congress tends to be asleep at the switch on economic policy when they aren't actively pushing in the wrong direction.)