Winding down

Between 2008 and 2014 the government engaged in a monetary process called quantitative easing. The government purchased about $3.5 trillion of treasury notes and mortgage backed securities. This increased the money supply and lowered interest rates. The interest rates were kept at almost zero for a number of years. This has allowed the government to borrow large sums of money at very low interest rates and even with these low rates the federal deficit still increased by 10 trillion dollars. Earlier this year the fed began taking steps to reverse the process by paying down the qualitative easing money in a process called winding down. This has caused interest rates to rise and will continue to do so until such times as the money supply decreases and this will take several years depending on how fast they act. The plan is to reduce the fed balance by $50 billion per month but that can change if it adversely affects the economy. So far it has played havoc with the stocks but the interest rate is holding at 2.5% and inflation rate is at 2.2%.