Federal Reserve officials left many important questions unanswered when they decided last year to begin shrinking the central bank’s $4.5 trillion portfolio of mostly mortgage and Treasury securities.
They are now beginning an internal debate to answer one of the most important of those questions: What exactly will this portfolio look like when they are done shrinking it?
The Fed has decided it wants to hold primarily Treasury securities rather than mortgage securities once it is done. But it hasn’t worked out what the mix of those Treasury securities will look like. Will it be mostly very short-term bills? Or will it include a hefty share of longer-term bonds?
The difference is critical. Fed policy in the past decade has operated on the theory that holding long-term securities stimulates financial markets and the economy by holding down long-term interest rates. That is thought to drive investors into riskier assets like stocks and corporate bonds and encourage business investment and consumer spending. Holding short-term securities, this theory holds, provides little stimulus.
An expanded version of this story is available at WSJ.com
https://www.wsj.com/articles/at-heart-of-new-fed-debate-bonds-or-bills-1534757400?mod=hp_lead_pos9
Is it time to sell your NFL team
