The Fed's swift shift from a monthly balance sheet reduction of about $50 billion to a current monthly expansion of $60 billion demonstrates both the difficulties facing the Fed in a volatile political environment and the risks involved in trying to adjust to market-sensitive systems in real time.
The Federal Reserve has previously begun to reduce its balance sheet to more than $4 trillion during the crisis, which is actually part of the "lifting" of the stimulus policy introduced during the financial crisis. But in recent years, policymakers have been distressed by the enormous pressure from Republicans in Congress, who want the central bank to scale down and not involve too much in the private market.
The prudent monthly drawdown of $50 billion was praised by Republican lawmakers at the beginning of its launch in 2017, and, as described by former Federal Reserve Chairman Yellen, was deliberately designed to be tiresome and unchanged, "like staring at paint drying out".
At first, this was true, but then President Trump noticed it at the end of recent years in his second year in office. He disagreed with Republicans'long-standing concerns about the size of the Fed's asset holdings and criticized the central bank for acting on the demands of his party bosses.
"Stop shrinking by $50 billion a month," Trump said on Twitter in December.
Far from Republican concerns about "cheap money", Trump believes that the Fed's withdrawal from the bond and mortgage markets was a greater drag on the economy in the context of interest rate hikes at the time.
The $50 billion monthly drawdown plan ended in July. Two months later, the Federal Reserve faced a new problem -- one that was not related to Trump, but rather to the new system of Fed interest rate management.
Hot Model No.: