Isn’t the role of the fed to absorb all the toxic (troubled) assets of economy on its balance sheet? This should free up reserves in banking system so they can do even more lending against next set of toxic collaterals.
I don’t understand why anyone would buy those risky Mortage bonds if fed tries to sell them in market. We have increased recession expectations and a risk of people losing jobs possibly defaulting on their mortgages.
Tapering can in fact expose Fed that it’s basically a dumpster of all the garbage assets in the economy.
I think Powell understands that. His strategy seems all talk some action. Crashing the market through hawkish talks to cause mild recession which should reduce aggregate demand & inflation.
Tldr: Fed doesn’t want to risk being exposed for holding garbage assets so they are bluffing the market with hawkish taper talks so it does the tightening without them having to do any serious tapering.
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