The Fed is A Proxy for Government

March 27, 2017
Quantitative Easing and the size of the Fed’s balance sheet has completely changed the way monetary policy is managed. It used to be that the Fed changed the size of its balance sheet to move interest rates. If it wanted rates to fall, it would buy bonds (increase the size of its balance sheet) by printing new money. That money would boost bank reserves and force the federal funds rate lower. If it wanted rates to rise, it would sell bonds, shrinking the amount of reserves, driving up rates as banks competed for a smaller pool. Click here for more details.