Showing posts with the label debt

Should Reversing QE Come Before Raising Interest Rates?

As the economy improves changes in Fed policy is likely but what action the Reserve will take is open to debate. The question was proposed by Tim Worstall in an article entitled, Should The Fed Raise Interest Rates Or Reverse QE First ? It is an important one as policy makers decide what they are going to do with this long-term debt while still trying to support America's re-emergence. It should be remembered that the purpose of QE was to stabilize the banking system that found itself without capital reserve not too long ago. As a crisis aversion tool the goal was to increase government debt through the buying of securities thereby putting more electronic cash, hence reserves, into the banks to avoid major defaults that could have dragged the economy down.  It became a crisis averted by transferring risks from the private sector to the government. As a policy stabilization made sense during a bank crisis but makes less sense as the economy recovers. The need to keep the liquid