Hiking rates before asset sales may constrict credit – paper

kansas-city-federalreserve

Research from the Kansas City Fed argues that if the Federal Reserve increases interest rates before selling assets, it may undermine bank profitability and reduce credit.

The paper observes that the Federal Open Market Committee first tapered asset purchases from 2013. Then it raised the policy rate (from 2015), and only then began reducing its balance sheet by selling off assets (in 2017).

Authors Karlye Dilts Stedman and Chaitri Gulati maintain that this sequence caused the rates on long

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