by André Marques
Mises.org
Last November, the Federal Reserve System announced tapering (a gradual reduction of the central bank’s monthly asset purchases to the point of ending the asset purchase program, which means that the Fed would stop increasing its balance sheet). In December, it announced another decrease in monthly asset purchases.
And in the last Federal Open Market Committee meeting, held on December 14–15 and published in January, the committee participants spoke not only of finishing the tapering, but also of a faster rate hiking. In addition, participants spoke of reducing the Fed’s balance sheet (selling the assets it holds, shrinking its balance sheet and the monetary base, M0) while it is hiking rates or after. This is the process called quantitative tightening, which is the opposite of quantitative easing, an expansion of the Fed’s balance sheet through asset purchases (expanding the monetary base).