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Opinion
Danielle DiMartino Booth

Can the Fed Slowly Deflate the Credit Bubble?

Historically reactive, the central bank is finally trying to get ahead of a potential crisis. 

People watch as a man makes giant bubbles in a street in Strasbourg, eastern France on August 5, 2015.  AFP PHOTO / FREDERICK FLORIN        (Photo credit should read FREDERICK FLORIN/AFP/Getty Images)
People watch as a man makes giant bubbles in a street in Strasbourg, eastern France on August 5, 2015. AFP PHOTO / FREDERICK FLORIN (Photo credit should read FREDERICK FLORIN/AFP/Getty Images)Photographer: FREDERICK FLORIN/AFP

This time a year ago, the federal funds target rate was 2.25% and Federal Reserve Chairman Jerome Powell was intent on raising it to 3% while continuing to shrink the size of the central bank's balance sheet. The massive disruption in the credit markets that followed not only thwarted his aims and catalyzed the “Powell Pivot,” but continues to dictate monetary policy even now.

Economists and academics have debated Powell’s motive for lowering interest rates and whether expanding the Fed's balance sheet again as a way to alleviate pressures in the repo market is just another round of quantitative easing in disguise, but investors are agnostic. To them, easier monetary policy of any form is the only thing that matters when it comes to the stock market and broader economy.