I hear the term ‘balance sheet reduction’ a lot in the recent days in regards to the ending of QE. Could some please explain what balance reduction means? Is it the same as balance sheet run off (which I do not know either)?
In: 3
The Fed has been buying stuff for the past couple years, mostly corporate debt. This increased demand holds prices up and pumps money into the economy – a process called quantitative easing.
The Fed has now taken away be punchbowl, as inflation indicates that the economy was overheated because they bought too much. They are selling their stuff, and getting money back. This reduces the money available in the economy and raises interest rates.
Latest Answers