A number of economists are trying to read into the meaning of Bernanke's statement last week. That's the set of comments that put a damper on the relentless equities rally and sent prices of Treasuries lower. In particular, the comment "we could take a step down in our pace of purchases" at the next FOMC meeting is causing angst in the investor community.
But what would such "tapering" in monetary expansion look like? The most likely outcome is a shift from $85 billion of purchases a month to something closer to $60 billion.
Here is the impact such a policy would have on the central bank's portfolio of securities:
The Fed is unlikely to do anything more dramatic, given the central bank has bet its reputation on this program. Reducing monetary expansion sharply just to return to it later will clearly be problematic. The outright holdings will therefore comfortably go above $3.5 trillion by the end of the year in spite of this policy pace "step down".
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What Would A Fed Tapering Policy Look Like?
Published 05/27/2013, 12:09 AM
Updated 07/09/2023, 06:31 AM
What Would A Fed Tapering Policy Look Like?
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