@jackyeoman7 Powell says the FED is going to target interest rates and hold them at a fixed low level. This is because he knows the economy and markets cannot tolerate lower rates. (too much debt). In order to hold interest rates at that low level he needs to be willing to be the marginal
@jackyeoman7 buyer for bonds. Why? Because there are not enough other buyers and if bonds are not bought interest rates go up. Bond prices down mean rates up. When the FED buys bonds their balance sheet expands and the money supply expands. Effectively they are "printing money" or
@jackyeoman7 increasing the amount of money in circulation. This increase leads to inflation. In theory with inflation bond yields would move higher in a free market because bond holders would want compensation for inflation, but with rates pinned this does not happen. Thus
@jackyeoman7 you get negative real rates. Eg: inflation exceeds bond yields. Negative return on a "real" basis. The problem is people see this. Who would buy a bond under such conditions? Answer: no one with a brain. Therefore, they sell bonds. Lower bond prices higher yields
@jackyeoman7 but there are no buyers. Except the FED. So the FED has to buy more. See where this is heading. The bigger the problem the more the FED has to print. The more the FED has to print the bigger the problem It is called a DOOM LOOP. It leads to a worthless currency
@jackyeoman7 If you study history it has happened many times. Weimar Germany is a good example. It has never happened to the reserve currency before, but there is a first time for everything.
@jackyeoman7 I meant cannot tolerate higher rates.
