The Fed announces plans to buy $ 200 billion in securities next week. That’s down from last week’s $ 75 billion on Monday, Tuesday and Wednesday ($ 225 billion in total) and an additional $ 120 billion on Thursday and Friday. That brings a total of $ 345 billion a week.
The bond market will close on April 10 in accordance with Good Friday. So that comes to $ 200 billion a week.
What is the effect and how do they actually stimulate their economy?
The Fed purchases government securities through private bond dealers and deposits payments into the bank accounts of individuals or entities that have sold the bonds. Deposits become part of the money the commercial banks keep with the Fed. These larger deposits increase the amount of money that commercial banks have available for lending. Retail banks want to use their cash reserves for lending. In doing so, they seek to attract borrowers by lowering interest rates, which includes the federal interest rate.
As the number of available loan funds increases, interest rates decrease. Reducing the cost of loans means that more people and businesses have access to lower-rate funds, which results in more costs and less people savings, and nourishes the economy, which leads to lower unemployment.
Trader Georgi Bozhidarov