The Fed could make a big change today. And no, we’re not talking about interest rates
CNN
Wednesday’s Federal Reserve policy decision will likely be pretty boring for investors — officials are widely expected to keep interest rates the same. But some savvy traders are getting excited about another key decision.
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link. Wednesday’s Federal Reserve policy decision will likely be pretty boring for investors — officials are widely expected to keep interest rates the same, just as they have since July 2023. But some savvy traders are getting excited about another key decision. They think that the Fed may curtail its quantitative tightening (QT) program — that’s the selling off of its assets to decrease money supply and increase interest rates — by as much as half. What’s happening: The Fed bought a ton of government-backed bonds between 2020 and 2022 to help support economic recovery after the pandemic-induced recession. Those purchases ended up pushing down interest rates in certain parts of the economy, like housing and auto sales. In mid-2022, as inflation soared higher, the Fed reversed that and began unloading those bonds. The Fed currently lets up to $60 billion in Treasuries mature each month without replacing them, reducing the amount of money circulating in the economy. The idea is that QT can help exert some downward pressure on prices.
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