But now the Fed has a new problem. The central bank's securities
purchases are financed with bank reserves, which have been
rising steadily in 2013 (chart below).
|
Source: FRB |
And to many on the Fed that was justifiable as long as US
commercial banks continued to expand their balance sheets. But
recently that expansion has stalled.
|
Source: FRB |
1. slow the purchases and run the risk of shrinking credit and
rising interest rates or
2. continue with the program and risk QE "side effects" without
the needed credit expansion (which has stalled).
That's why we are likely to see the Fed even more divided going
forward, adding to more uncertainty and frustration by investors
(including those outside the US) as well as the public.
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