The Fed's bloated balance sheet: how we got here and why it's familiar

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Ricketts, Lowell R.; Waller, Christopher J.;
(2014)
  • Journal: The Regional Economist,issue Jan

Quantitative easing has led to the largest expansion of the Fed’s balance sheet since WW II. While this, naturally, leads to concern about inflation, the Fed has the tools to unwind the balance sheet once the economy builds steam.
  • References (6)

    1 See Bullard.

    2 The $10 billion reduction consists of an equal $5 billion taper for both MBS and Treasury security purchases.

    3 Swiss exports are heavily reliant on demand from the euro area. During the European debt crisis, investors flocked to the Swiss franc as a safe-haven currency and drove up the value of the franc significantly. This made Swiss exports far less competitive (declining at an annual rate of about 6 percent in the third quarter of 2011) and greatly diminished GDP growth (-2.9 percent annual rate during the same period.) In response, the Swiss National Bank purchased mass quantities of foreign currency to drive down the value of the Swiss franc. This is a great example of an LSAP program that involves both a diferent objective as well as a diferent asset.

    4 For a thorough analysis of Fed exit strategy, see Kliesen.

    Bullard, James. “Seven Faces of 'The Peril.'” Federal Reserve Bank of St. Louis Review, September 2010, Vol. 2, No. 5, pp. 339-52.

    Kliesen, Kevin L. “The Fed's Strategy for Exiting from Unconventional Policy: Key Principles, Potential Challenges.” Federal Reserve Bank of St. Louis The Regional Economist , October 2013. See this online-only article at www.stlouisfed.org/ publications/re/articles/?id=2426.

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