The Fed purchase trillions in government and mortgage bonds, a way to keep long-term borrowing costs down and support lending, investment and consumption. - From Business Insider
The expansion has also been the longest on record, and employment conditions, while still shy of pre-crisis norms, have improved considerably since the depths of the downturn, with the unemployment rate swooning from a 10% peak in October 2009 to its current 4.5%.
Now, the Fed is faced with the prospect of abandoning a policy whereby it ceases to reinvest the proceeds from maturing government bonds back into its asset portfolio which, at $4.5 trillion, is some five times larger than pre-recession norms.
"The challenge for the Fed is that the tapering of its balance sheet is likely to induce financial tightening, essentially reversing some of the allegedly positive effects of quantitative easing (QE)," the economists, led by Joseph LaVorgna, write.
Minutes of the Fed’s March meeting made clear the central bank is planning some announcement later in the year, causing Jeremy Lawson, chief economist at Standard Life Investments, and his team to revise their rate forecasts to account for one meeting where that announcement will take place.
"As long as the labor market continues to improve, we expect the target range for the federal funds rate to be increased by 25 basis points in both June and September," Lawson wrote.