Basic money 101 question. Federal Reserve?

[bclover]

I was reading an article some one sent me on the economic outlook and it mentioned the federal reserve bank and I realized I have really no idea what they do.

So I know they raise and lower interest rates, which trickle down to credit interest rates (yea/nay?)

But it also said the fed is going to lower "it's balance sheet" and withdrawing some of the money it invested?

That's the part I don't understand?

So what does the fed invest in? Is it with tax payers dollars?

 

[bingybear]

But it also said the fed is going to lower "it's balance sheet" and withdrawing some of the money it invested?

That's the part I don't understand?

So what does the fed invest in? Is it with tax payers dollars?

If I recall during the 2008/9 (+ a few years) bought up some treasuries and possibly mortgages to put some liquidity in the market. They did this to the tune of about 4 trillion dollars. This is what they are presently unwinding.

 

[exnavynuke]

Investopedia is a really good source (IMO) to learn about stuff like this.

Here's a basic overview of the fed's balance sheet for instance:
Understanding The Federal Reserve Balance Sheet

Here's a basic explanation of the Federal Reserve itself:
The Federal Reserve: What Is The Fed?

 

[nvestysly]

I'm certainly not an expert on the Federal Reserve. Lowering their balance sheet means they are selling off the bonds they bought back in the financial crisis. The phrase coined regarding the increase of the balance sheet is "quantitative easing." So now they are unwinding the quantitative easing.

Makes me think of a video I saw on this forum regarding quantitative easing...

Look on YouTube for more funny and informative videos on the subject.

I believe this unwinding could have negative impacts on stock market investors and the Fed believes this too so they are attempting to be very careful with the process. Time will tell.

 

[bclover]

So the Fed has no budget?

 

[bclover]

Investopedia is a really good source (IMO) to learn about stuff like this.

Here's a basic overview of the fed's balance sheet for instance:
Understanding The Federal Reserve Balance Sheet

Here's a basic explanation of the Federal Reserve itself:
The Federal Reserve: What Is The Fed?

lol. The feds consider cash money as a liability. no wonder I'm confused.

 

[FIRE'd@51]

It should be noted that another way to reduce the Fed's balance sheet is to not reinvest the proceeds as fixed-income securities in its portfolio mature. This approach, which the Fed seems to favor, will wind down the balance sheet more slowly, but should be less disruptive to the financial markets.

 

[Bigdawg]

I'm certainly not an expert on the Federal Reserve. Lowering their balance sheet means they are selling off the bonds they bought back in the financial crisis. The phrase coined regarding the increase of the balance sheet is "quantitative easing." So now they are unwinding the quantitative easing.

Makes me think of a video I saw on this forum regarding quantitative easing...

Look on YouTube for more funny and informative videos on the subject.

I believe this unwinding could have negative impacts on stock market investors and the Fed believes this too so they are attempting to be very careful with the process. Time will tell.

Watching that video evoked some weird emotions. Started to laugh then realize I should be crying.

 

[GravitySucks]

I was reading an article some one sent me on the economic outlook and it mentioned the federal reserve bank and I realized I have really no idea what they do.



?

It's 13 men and women that, every three months, dress in thick brown hooded robes, meet in a windowless round stone building and sacrifice a virgin chicken to decide whether to raise or lower short term bond rates by .05 percent.

One of these days I need to buy a Money and Banking text book.

 

[dallas27]

The academic answer

The fed control the supply of us dollars in the economy, it has three primary tools to do so

1 interest rates can be manipulated by it buying or selling assets, sometime referred to as printing money though no money is printed
2the bank reserve limit, the fed determines how much money banks must keep in reserve, and therefore how much they can loan out
3 the discount window, a virtual wind that sets the “emergency” rate at which any bank can borrow money, and thus setting a rate floor for the economy