Possible pause: Dudley said recently that policy makers might ‘take a little pause’ in raising the federal funds rate when they start to shrink the balance sheet. – Reuters
NEW YORK: Investors have reacted to the Federal Reserve’s plan to shrink the balance sheet so far in exactly the opposite way that policy makers had feared.
News about the US central bank’s strategy to start reducing its bond holdings, which began taking shape over the past week, has actually led to easier financial conditions via lower interest rates. That contrasts with the surge in treasury yields that occurred during the so-called “taper tantrum” of 2013, when then-Fed chairman Ben Bernanke hinted the central bank would reduce its purchases of treasuries and mortgage-backed securities that were designed to bring down long-term interest rates.
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