The Fed’s Latest Meeting And Why It Matters To Us

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The Federal Reserve met today, and of course, the takeaway from that meeting was that they would soon raise interest rates and taper bond purchases.

Of course, they didn’t tell us when This will happen, but the consensus of those who know it is that it will be sometime in March.

The Fed is famous for being vague about dates and more. Who needs the details?

Now that the latest inflation news and the Fed’s monetary tightening are expected, the market is so, as this year was a rough start.

So how much tightening are we talking about? Good question, money mover.

The Fed said benchmark short-term borrowing rates are likely to rise a quarter point.

Wow! Is this all market turmoil increasing by more than 0.25%? You’ll never be surprised that one committee of brains can make such a big impact on the financial decisions and outcomes of millions of investors and the average Jaws.

“We expect it will soon be appropriate to raise the federal funds rate target, as inflation is well above 2% and the labor market is strong,” the Commission’s statement said.

When According to CNBC “The Commission noted that central bank monthly bond purchases will proceed for only $ 30 billion in February, which means that interest rates may rise and the program may end in March. Is shown. “

The Commission also said that the Fed’s $ 9 trillion balance sheet “taper” follows the Fed’s rate hike.

“The Commission is ready to adjust the details of its approach to reducing the size of its balance sheet in the light of economic and financial development,” the document said.

So quantitative easing is nearing its end and declining is likely to begin.

Below is a quick review course for those who are wondering what the Fed is talking about.

“”What is Quantitative Easing and Decay? “

Quantitative easing is a federal term for increasing the money supply to the economy, lowering interest rates and promoting economic growth.

The Federal Reserve Board was the first to adopt this approach following the 2008-2014 financial crisis.

“How does the Fed do this?” You might ask.

Simply put, the Fed buys long-term securities from the open market, which adds money to the economy and facilitates lending and investment. It has also inflated the Fed’s balance sheet, which now exceeds $ 8 trillion.

So you may also ask: “What are these long-term securities you talk about?”

Also a good question.

The Federal Reserve buys government bonds from the open market, buys mortgage-backed securities, and remits them to the economy.

If you lived during the financial crisis of 2007-2009, you might remember the anxious mortgage-back securities … but that’s another day.

With many companies closed and many employees fired, the Fed conducted the latest round of quantitative easing in early March 2020 of the coronavirus pandemic. fluffy, Or otherwise unemployed.

The Federal Reserve has promised to buy $ 80 billion in government bonds and $ 40 billion in mortgage-back securities to boost demand and encourage investment during the dark of the pandemic.

So what is a taper?

Well, it’s easy enough to explain.

It simply reduces the amount of government bonds and mortgage-backed securities the Fed is trying to buy each month.

And here again. At the time of writing this article, the market is once again surprised as Jerome Powell says there is still plenty of room to raise interest rates.

And once again, the market fell again after trading much higher earlier in the day.

Poor Jerome.He just can’t seem to make Anyone I’m happy these days.

Oh well.

As for what this means for us in the long run … we just have to wait and see.

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