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Normalization of Monetary Policy

By
J SOEDRADJAD DJIWANDONO
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On September 20, in a Federal Open Market Committee meeting that is held eight times a year, the US Federal Reserve decided not to change its Fed funds rates or prime rates, which currently sit at around 1 to 1.25 percent.

The Fed also decided to jumpstart a program to reduce its securities portfolio in its October balance sheet. Since the global financial crisis of 2008, the Fed’s balance sheet has skyrocketed to US$4.5 trillion, four times the amount before the crisis occurred. What does the action mean and what are its implications for developing economies, such as Indonesia?

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