3 ms·

> Buying and selling assets is the main way the Fed enforces its monetary policy > Buying bonds pushes their price up which lowers rates; selling bonds pushes

by cm2187 4y ago

> Buying and selling assets is the main way the Fed enforces its monetary policy > Buying bonds pushes their price up which lowers rates; selling bonds pushes their price down which raises rates I know. But you seem to think this is the only purpose and only effect. If it was the case the rates would have gone deeply negative while the Fed kept printing QE for 15 years. But they didn't, rates stayed around zero during that time. [edit] And by the way, the Fed doesn't control rates by buying and selling ABS and treasuries (except for a short time for operation twist). ABS and treasuries are the bulk of the Fed balance sheet. The Fed controls rates by intervening in money markets (short term funding between banks).

JumpCrisscross 4y ago
> you seem to think this is the only purpose and only effect Nobody said that. You said the Fed's balance sheet "movements...have little to do with rates." That's false. That's the main reason it buys and sells. That there are also other motivations and effects is not a counterargument. > rates would have gone deeply negative while the Fed kept printing QE for 15 years Why? Rates went down and were held down. Selling a dollar of bonds doesn't lock rates to a specific level, it directionally nudges them. > Fed doesn't control rates by buying and selling ABS and treasuries Agreed—mortgages are different. Those were bought to pursue market stability, not purely monetary, goals. Treasuries, on the other hand, are absolutely a credit-channel monetary intervention, albeit on the tail [1]. > Fed controls rates by intervening in money markets (short term funding between banks) Yes, those interventions are it buying and selling securities [2]. If banks have cash from sold assets, they don't need to borrow as much and can more freely lend (and vice versa). [1] https://www.cfr.org/blog/how-fed-bond-binge-predictably-stoked-inflation https://www.cfr.org/blog/how-fed-bond-binge-predictably-stok... [2] https://www.federalreserve.gov/aboutthefed/files/the-fed-explained.pdf#page=24 https://www.federalreserve.gov/aboutthefed/files/the-fed-exp...

by cm2187 4y ago

JumpCrisscross 4y ago

> you seem to think this is the only purpose and only effect Nobody said that. You said the Fed's balance sheet "movements...have little to do with rates." That's false. That's the main reason it buys and sells. That there are also other motivations and effects is not a counterargument. > rates would have gone deeply negative while the Fed kept printing QE for 15 years Why? Rates went down and were held down. Selling a dollar of bonds doesn't lock rates to a specific level, it directionally nudges them. > Fed doesn't control rates by buying and selling ABS and treasuries Agreed—mortgages are different. Those were bought to pursue market stability, not purely monetary, goals. Treasuries, on the other hand, are absolutely a credit-channel monetary intervention, albeit on the tail [1]. > Fed controls rates by intervening in money markets (short term funding between banks) Yes, those interventions are it buying and selling securities [2]. If banks have cash from sold assets, they don't need to borrow as much and can more freely lend (and vice versa). [1] https://www.cfr.org/blog/how-fed-bond-binge-predictably-stoked-inflation https://www.cfr.org/blog/how-fed-bond-binge-predictably-stok... [2] https://www.federalreserve.gov/aboutthefed/files/the-fed-explained.pdf#page=24 https://www.federalreserve.gov/aboutthefed/files/the-fed-exp...