Don’t fear the taper: Fed to dominate Treasury market for years

Bloomberg/Liz McCormick and Rich Miller

Repost from 5-21-2021

bar chart showing combined Fed assets U.S. Treasuries and mortgage backed securities through April 21

Source: St. Louis Federal Reserve [FRED], Board of Governors of the Federal Reserve System

“The Fed will have a big hand in fixed-income markets for as far as the eye can see.” – Matt Nest, State Street Global Advisors.

USAGOLD note: In the present policy mix, tapering is the equivalent of taking away the punch bowl. As a number of analysts have pointed out in the recent past, should the Fed withdraw from the Treasuries markets, interest rates would skyrocket, the bond market could collapse, and Federal government interest payments, in turn, would skyrocket. We should all keep in mind the chaotic reaction the last time the Fed attempted to taper. The trend evident in the chart above appears well entrenched – its economic and policy underpinnings solidly intact.

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