So The Fed has announced the first step-towards quantitative easing 2.0, with what Goldman Sachs might call a baby step.
What they’re doing is holding the balance sheet steady — rather than letting it shrink naturally — by reinvesting the proceeds of asset sales into Treasuries.
It’s not a whole lot, and it’s probably mostly symbolic.
But what it symbolizes is important: It symbolizes that there’s more to come.
The hard part was making the decision to downgrade the economy and give up on tightening. Now begins the fun part. Anything from here on out (more MBS purchases, ramped up Treasury purchases, expanding the balance sheet in other ways, etc) can be done more easily, now that they’ve cracked the door.
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