This fall the Federal Reserve intends to officially begin the process of unwinding their large balance sheet, marking an end to the program known as quantitative easing (QE). This program was initiated in 2008 as the U.S. economy was quickly heading into recession, led by the U.S. housing crisis. The Federal Reserve, over the following six years, purchased $4 trillion worth of Treasury bonds and mortgage-backed securities in an attempt to prevent the recession from turning into another Great Depression. Now that the economy is stable again, and no longer requires assistance, the Federal Reserve plans to reverse these QE programs. Many market participants have made predictions for what this reversal process might look like, and how it may affect the economy, but the reality is that this is unknown territory because QE was an unprecedented move by our central bank. Jim Puzzanghera and Don Lee, of the L.A. Times, wrote a great review on the impact of QE and discuss several challenges facing the Federal Reserve as they embark into unknown territory.
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