Today, house prices are surging, stocks have continued their stratospheric rise, and banks have more cash than they know what to do with.
That’s what a growing number of lawmakers, investors and even some Fed officials themselves are demanding to know.
“There’s no justification for the Fed to maintain at current levels, and doing so seriously risks contributing to heightened inflation,” Sen.
Fed policymakers, who will gather this week for a closely watched meeting on their next steps, are now grappling with how and when to start slowing their bond buys, which amount to a staggering $120 billion a month.
Some Fed officials believe that tapering bond purchases too soon could weaken the economy once the trillions of dollars in aid approved separately by Congress runs out, particularly amid rising fears about the latest coronavirus surge.
But it’s also not clear how much those asset purchases are actually helping support jobs.
A big priority for the Fed now is not to surprise investors, who are expecting bond purchases to slow, but not for several months.
But George Pearkes, macro strategist at Bespoke Investment Group, said it’s a misconception that the Fed’s mortgage-backed security purchases have a targeted effect on mortgages.
Perli said the benefit to the Fed’s asset purchases — or “quantitative easing,” as it is known — is entirely front-loaded: Markets react to the central bank’s initial announcement that it will conduct massive amounts of buys over an unspecified period of time, and rates adjust accordingly.