Problem
The minutes from the March FOMC meeting (and presumably those from the May meeting last Wednesday) suggest that the Federal Reserve may soon start to normalize its balance sheet as it simultaneously continues to slowly increase the Fed Funds target rate.
a) If the Federal Reserve implemented a policy to increase the Fed Funds rate and to normalize its balance sheet, what is the impact you would expect such a policy to have on the term structure of interest rates?
b) Keeping the monetary policy stance of other countries (say Canada, Mexico, the ECB, or the BoE) constant, how would you expect the exchange rate (e.g. € / $) to evolve if the Fed implemented the two-pronged policy described in question a)?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.