Explain Fed Balance Sheet Exit?
Could you explain in simple terms why the Fed exiting its balance sheet, by selling its assets would cause inflation? I understand that if they sell a large amount of bonds into the market, that it will cause bond prices to go down and thus yields to shoot up, right?
I just can't seem to understand exactly how the whole excess reserves and inflation come into play if the Fed exits..
Thanks!
If the Fed were to sell off its balance sheet, theory suggests that would reduce inflation. Not increase it.
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