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How Will the Fed Raise Rates?
A Federal Reserve rate hike is very likely to occur before the end of the year or in Q1. But many are still unclear about how the Federal Reserve will raise rates. After all, we’re in a new monetary environment in the post-crisis period thanks to the size of the Fed’s balance sheet. I’ll try to touch briefly on this to clarify some concerns. In the pre-crisis period the Fed set a target rate for the overnight interest rate and altered the quantity of reserves in the banking system. Banks are required to hold some reserves and this allowed the Fed to act as a sort of monopolist in the overnight market. ... (full story)