Sep
02

Fed Flexibility

Financial markets are jittery about the Fed’s plans to taper its monthly purchases of Treasuries and mortgage-backed securities, not so much because tapering itself is likely to raise rates, because it won’t. Rather, markets fear that the end of tapering will be quickly followed by increases in the fed funds rate, which is not necessarily the case. The Fed should make this explicit and thereby give themselves more maneuvering room.

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