QE Shifts to QT

by Marilou Long on September 21, 2017

in Banks,Credit Crisis,Fed policy,inflation/deflation

During the financial crisis, the Federal Reserve invested trillions of dollars in credit assets in order to keep markets and the economy from collapsing in a process known as quantitative easing, or QE.  The Fed announced yesterday that it would start to withdraw that support, and market participants have already started calling it QT, or quantitative tightening.  From the linked New York Times article:

WASHINGTON — Nearly a decade after the Federal Reserve embarked on an unprecedented effort to shore up the collapsing American economy, the central bank said on Wednesday that it would begin withdrawing some of the trillions of dollars it invested in the wake of the 2008 financial crisis.

The decision, while widely expected, is nevertheless a significant sign that the Fed is confident that economic growth and low unemployment will continue. In other words, the central bank believes that the American economy has emerged safely from the crisis.

“The basic message here is U.S. economic performance has been good,” Janet L. Yellen, the Fed’s chairwoman, said at a news conference following a two-day meeting of the Fed’s policy committee.

The Fed’s retreat from its post-crisis stimulus campaign will be slow but steady as the central bank looks to shrink the enormous $4 trillion portfolio it amassed through a bond-buying spree.

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