Tuesday, December 29, 2009

Fed Proposes Selling Term Deposits to Absorb Excess Reserves - BusinessWeek

In "open-market transactions" the Fed buys and sells assets to change the money supply. For instance, if they want to shrink the money supply they will sell something. (selling shrinks the money supply since the banks have to pay money to buy the asset. This in turn reduces the amount of money available to lend out.

Now the Fed is considering selling a different type of asset:

Fed Proposes Selling Term Deposits to Absorb Excess Reserves - BusinessWeek: "
The Federal Reserve proposed a program to sell term deposits to banks to absorb some of the banking system’s $1 trillion in excess reserves now threatening to accelerate inflation as the economy recovers."

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