BACKGROUND
I am involved in finance, but by no means an economist. I've been reading Ben Bernanke's "The Courage to Act" and have become interested in QE1 and QE2. Currently, I am trying to understand the Fed's Balance sheet reduction.
NOTE: Apologies if some of my assumptions/questions are misguided
ASSUMPTIONS
- QE was a fiscal strategy to lower long-term interest rates
- Fed bought Treasury securities and Mortgage-backed Securities to reduce long-term interest rates
- Fed is currently looking to reduce Balance sheet to raise long-term interest rates to pre-recession levels (including short-term interest rates)
- The Fed is looking to raise short-term interest rates first, then long-term interest rates
QUESTION(S)
- If the Fed raises short-term interest rates, but keeps long-term interest rates low, wouldn't this create an Inverted Yield Curve?
- Aren't Inverted Yield Curves an indicator of recession?
- Why isn't it better to raise on long-term interest rates first, and then raise short-term interest rates?