Fed’s Lockhart: No appetite at Fed to monetize the debt
Atlanta Fed president Lockhart says there is absolutely no appetite at the Fed to monetize the debt. Monetizing debt is when a nation’s central bank buys the debt issued by the country’s Treasury.
Some while argue that the Fed has partially monetized via QE, but in reality its portfolio its Treasury holdings are not that much bigger now than at the beginning of the crisis. The vast majority of the debt bought via quantitative ease was in mortgage-backed securities.
Anyway, it is good news for bond holders that the US won’t be both a big issuer and buyer of its own debt. It will just be a big issuer!
thanks Jamie, make sense to me…so far their buying has been supportive. Zero Hedge reports that Fed is now the third lagest bond holder (behind China & Japan) of US debt. I guess they have no choice but continue to intervene if bond price drops…
You have two different issues at play.. supply/demand… if fed is a buyer, presumably that pushes prices lower…If they are a huge buyer, buying significant quantities, essentially funding the government via its purchases, that would create a complete loss of confidence among investors who would dump their holding. Presumably it would set off an inflationary spiral as well. That’s why the Fed wants to limit their intervention in bond markets to the extent possible, to avoid the charge that it is financing government spending…
Long story short: buying a little is market supportive; buying a lot is destructive…
I am a little confused…is this good news for bond hoders? if the Fed stop monetizing the debt, the bond price should fall right?