Explain like I’m 12. Thanks in advance
1) What happens if the Fed stops paying interest on reserves. What will banks do to beat inflation, if they don’t have enough credit worthy borrowers who can pay inflation+2%. Would they buy stocks and gold?
2) Say the Fed wants the 1-year rate at 0%. But no one in the market buys newly issued treasury bonds. Does the Fed call the mega-banks and say hey, you must buy those bonds at 0% and then we’ll buy them for you.(plus some sort of fee)?
3) What happens to the 30-year treasury if the Fed says its keeping the 1-year at 0% indefinitely. ie all they are doing is buying 1-years at 0% and no other durations. (And why would they buy other durations if they can keep rolling 1-years?)
4) also in this example lets say CPI is 5%. What rates is the private market going to demand on bonds. Eg 7% on a 1-year corporate and 9% on a 30 year corporate?
In other words trying to understand how the Fed only buying short would influence other durations of treasuries, and the rates of private market loans.
1) What happens if the Fed stops paying interest on reserves. What will banks do to beat inflation, if they don’t have enough credit worthy borrowers who can pay inflation+2%. Would they buy stocks and gold?
2) Say the Fed wants the 1-year rate at 0%. But no one in the market buys newly issued treasury bonds. Does the Fed call the mega-banks and say hey, you must buy those bonds at 0% and then we’ll buy them for you.(plus some sort of fee)?
3) What happens to the 30-year treasury if the Fed says its keeping the 1-year at 0% indefinitely. ie all they are doing is buying 1-years at 0% and no other durations. (And why would they buy other durations if they can keep rolling 1-years?)
4) also in this example lets say CPI is 5%. What rates is the private market going to demand on bonds. Eg 7% on a 1-year corporate and 9% on a 30 year corporate?
In other words trying to understand how the Fed only buying short would influence other durations of treasuries, and the rates of private market loans.
Statistics: Posted by boglerdude — Sun Feb 09, 2025 10:54 pm — Replies 0 — Views 88