US Treasury Secretary Looking for Alternatives to Tighten Monetary Policy

With the Federal Reserve under fire for raising interest rates, Treasury Secretary Steven Mnuchin has been looking to see if there are other ways to normalize monetary policy, according to a report.

Mnuchin has been asking some of the biggest players in the bond market if they would rather see the Fed step up the rundown of its balance sheet than hike short-term rates, according to a Bloomberg post that cited six people familiar with the discussions.

The balance sheet consists mostly of bonds the central bank purchased in its efforts to stimulate the economy during and after the financial crisis. It currently totals $4.15 trillion, down from $4.51 trillion where it stood before it started allowing a capped level of proceeds from the bond holdings to run off each month.

Mnuchin reportedly approached the fixed income dealers and investors to ask them if a Fed acceleration of the pace of the balance sheet runoff could accomplish its goal of tightening policy to prevent the economy from overheating. The runoff pace is currently at $50 billion a month.

The report said that the people to whom Mnuchin spoke — members of a Treasury advisory committee that makes recommendations on the pace of government debt sales — were split on the idea.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza