Quantity Quandary

Given that the Fed has begun to raise short-term rates, it’s necessary that the Fed also raise long-term rates. And doing that requires shrinking its balance sheet because the trillions there are almost all long-dated securities. By holding those securities, the Fed artificially depresses long-term rates. The Fed is trying to get both long-run and short-run interest rates to their appropriate market levels roughly simultaneously. This is complicated and unprecedented.