The fight against global inflation has become the main task of the largest central banks around the world. Monetary policy measures, including raising rates, have not yet given the desired effect. Analysts have serious concerns that even such omnipotent institutions as the US Federal Reserve have less and less opportunity to influence the situation.
The main difficulty is that in order to support monetary policy The Fed needs to eliminate the giant overhang of $9 trillion in US government and mortgage bonds on its balance sheet. There is not enough liquidity to successfully dump even a part of these securities. The situation has already been dubbed “the Fed’s worst nightmare.”
Until the end of the decade before last, the Fed’s balance sheet was rather small. Bonds were bought all the time, but it was a systematic increase, more or less correlated with the growth of nominal GDP. From 2004 to 2008, for example, the total volume of securities under the control of the system increased from $750 billion to $900 billion. – to contain the overclocked prices. But in parallel, it was necessary to ensure the “weight loss” of the balance. This process is called “quantitative tightening” (QT), the opposite of “quantitative easing” (QE).
The idea is that when bonds sell off, supply begins to outweigh demand, and bond rates are rising. As a result, they begin to increase throughout the economy. Companies and consumers, faced with higher rates, are less willing to go into debt, after which the circulation of money shrinks and the economy cools.
which no one could have predicted – it turned out that there is not so much liquidity on the market to easily “digest” the dumped securities.
Read more in the exclusive material of Izvestia:
The glass is half empty: why central banks are powerless against inflation