Hawkish Philadelphia Federal Reserve President Charles Plosser has outlined his strategy for ending quantitative easing and the Fed’s zero interest rate policy.
The full speech is here, but we have a brief breakdown of what Plosser’s strategy for returning the Fed to normalcy.
12 month program:
- Hike rates 25 bps at every Fed meeting (eight per year)
- Sell $125 billion in assets after each meeting
- Result: In 12 months, the Fed Funds Rate rises to 2.5%
- Result: In 12 months, the Fed reduces its balance sheet by $1.45 trillion
18 month program:
- Sell $67 billion in assets after each meeting
- Raise rates to 3.5%
- Fed Funds rate functions as policy tool normally
- Fed balance sheet down to $50 billion in assets