Non-Economic Reasons The Fed Is Tapering - Business Insider

Non-Economic Reasons The Fed Is Tapering - Business Insider:

From Business Insider an astute observation that I have written about at Seeking Alpha:

Federal Reserve purchases of government debt via quantitative easing already account for an overwhelming majority of new issuance from the Treasury, and if the central bank doesn't reduce the amount of bonds it is buying as the Treasury reduces the amount of bonds it is issuing, the Fed purchases will account for an even larger share of the market than before.

This, in turn, would necessarily mean a reduced supply of Treasuries available to other market participants. Because Treasuries – one of the few remaining AAA-rated financial assets on the planet – are used as collateral in a host of transactions throughout the financial system, continued Fed purchases at the current monthly pace as issuance declines could weigh on the financial system's ability to lend and lead to an increased risk of further destabilization in the Treasury market.


Comments

Popular posts from this blog

Gary Anderson's Talkmarkets Articles by Subject

John Mauldin Discusses What Could Go Wrong

My Gedmatch Jewish Roots Force AntiIsrael Stance: Palestinian DNA