The Fed’s Balance Sheet: The Other Exponential Curve #infgraphic

The Fed’s Balance Sheet: The Other Exponential Curve #infgraphic

Nevertheless, modern economies are highly complex — and calamities such as the 2008 financial crisis have already driven traditional frameworks of policy to their limits. In addition, some central banks have turned to newer, more unorthodox approaches, such as quantitative easing and negative interest rates, for doing their work.

In response to the COVID-19 pandemic, central banks are taking decisive measures once again. To help us understand what is being achieved, today's infographic uses IMF data to compare the policy responses of 29 economies that are systemically relevant.
Policy rate cuts, or interest rate cuts, were one commonly used instrument. Relatively clear is the logic behind rate cuts — a central bank puts downward pressure on short-term interest rates, raising overall borrowing costs. Ideally this increases business investment and consumer spending.

If the short-term rates are already close to zero, reducing them further could have little to no effect. Therefore, central banks leaned on asset buying schemes (quantitative easing) to put downward pressure on longer-term rates. That policy was a cornerstone for the U.S. COVID-19 Federal Reserve (Fed) response where newly generated money is used to purchase hundreds of billions of dollars of securities, such as government bonds.

The Fed’s Balance Sheet: The Other Exponential Curve #infgraphic

infographic by: www.visualcapitalist.com

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