The Fed’s Balance Sheet: The Other Exponential Curve #infgraphic

The Fed’s Balance Sheet: The Other Exponential Curve #infgraphic

Nevertheless, modern economies are extremely complex — and calamities like the financial crisis of 2008 have already driven conventional policy mechanisms to their limits. In addition, some central banks have turned to newer, more unorthodox approaches for doing their work, such as quantitative easing and negative interest rates.

Central banks are taking decisive measures once more in response to the COVID-19 pandemic. To help us understand what is being done, today's infographic uses data from the International Monetary Fund (IMF) to compare the policy responses of 29 economies that are systemically significant.

One commonly used tool was policy rate cuts, or interest rate cuts. The reasoning behind rate cuts is relatively straightforward — a central bank puts downward pressure on short-term interest rates, reducing the overall borrowing cost. Ideally this increases investment by companies and consumer spending.

If the short-term rates are already close to zero, further reducing them may have little to no effect. Central banks have therefore leaned on asset purchase schemes (quantitative easing) to put downward pressure on longer-term rates. That policy was a cornerstone of the United States. COVID-19 response from the Federal Reserve ( Fed), in which newly generated money is used to buy hundreds of billions of dollars of securities, such as government bonds.


The Fed’s Balance Sheet: The Other Exponential Curve #infgraphic

infographic by: www.visualcapitalist.com

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