Tag: quantitative tightening

$95 Billion Per Month In QT Is A High Bar

$95 Billion Per Month In QT Is A High Bar

The Fed was to have achieved a $95 billion per month Balance Sheet reduction run rate by September ($60 billion of Treasury securities and $35 billion of mortgage-backed securities). The culling of $60 billion in Treasuries per month is going to be difficult to execute. The Treasury market lacks liquidity as evidenced by the sharp … Continue reading $95 Billion Per Month In QT Is A High Bar

How The Fed’s Balance Sheet Has Changed

How The Fed’s Balance Sheet Has Changed

We detail changes in the Fed's Balance Sheet since May 2022 as the Fed has embarked on its QT program (which has yet to kick into high gear). QT ramps up this month. Approximately $92 billion of Treasury securities have been pared from the Fed's Balance Sheet since May 4th 2022.Approximately $6 billion of Government … Continue reading How The Fed’s Balance Sheet Has Changed

QT Has Yet To Kick In Yet Yields Have Moved

QT Has Yet To Kick In Yet Yields Have Moved

Once the Fed fully ramps its QT effort logic suggests that Treasury yields will climb higher as it is unlikely that a buyer(s) exist to offset the Fed's Balance Sheet runoff. Thus, Treasury prices are likely to fall and yields will climb. Risk assets are likely to decline in value during this QT period. The … Continue reading QT Has Yet To Kick In Yet Yields Have Moved

No QT as Far as The Eye Can See

No QT as Far as The Eye Can See

We wrote yesterday that we would be surprised if the Fed follows through on its stated plan to reduce its balance sheet by $95 billion per month as it seeks to unwind the heavy hand it played in 2020 and 2021 by subsidizing fiscal stimulus programs and executing its QE program. Robust Fed balance sheet … Continue reading No QT as Far as The Eye Can See

The Fed Should Focus On QT

The Fed Should Focus On QT

The Fed would be far more effective in controlling inflation if it were to pare its Balance Sheet versus focusing on the Fed Funds Rate. Inflation is created by excess money in the economy ("excess" money in that it is not generated from Production output but rather money printing by the Fed). The Fed could … Continue reading The Fed Should Focus On QT

CPI Release On Wednesday: Our Thoughts

CPI Release On Wednesday: Our Thoughts

We expect the June CPI figure to come in around 9% when CPI data is released Wednesday at 8:30am ET. What do we expect for a Fed Funds Rate increase?If the CPI comes in at 8.0-8.5%, we expect that the Fed will increase the Fed Funds Rate by 75 basis points at its FOMC meeting … Continue reading CPI Release On Wednesday: Our Thoughts

The Fed Has Yet To Reduce Its Balance Sheet

The Fed Has Yet To Reduce Its Balance Sheet

The Fed's forthcoming QT program has yet to ramp, thus the monetary tightening process has yet to really begin in our view. Tomorrow at 4:30pm ET we will get a picture of where the Fed's balance sheet sits. After shrinking modestly during the month of May, the Fed continues to grow its balance sheet (below). … Continue reading The Fed Has Yet To Reduce Its Balance Sheet

We’ve Still Got A Long Long Way To Go

We’ve Still Got A Long Long Way To Go

"It would seem we've still got a long, long way to go" sang Phil Collins. I could not help but think of these lyrics as I reviewed the Fed's balance sheet this morning. While the Fed's Quantitative Tightening ("QT"), has only just begun, it has an enormous, multi-year project in front of it as it … Continue reading We’ve Still Got A Long Long Way To Go

Treasury Yields Will Only Move In One Direction

Treasury Yields Will Only Move In One Direction

10-year Treasury yields sit around 2.72% and will climb higher as the Fed: a.) lifts the Fed Funds Rate and, b.) trims its balance sheet (i.e. quantitative tightening "QT"). There is no scenario in which the Fed executes QT only to have Treasury yields move lower. It is simply a question of supply and demand. … Continue reading Treasury Yields Will Only Move In One Direction

The Baby Will Get Thrown Out With The Bath Water

The Baby Will Get Thrown Out With The Bath Water

The Federal Reserve will pursue some combination of modest interest rate hikes and potentially shrinking of its balance sheet / Quantitative Tightening in the coming weeks and months. The Fed's "Too Little, Too Late" monetary policy will do little to curb inflation. However, the Fed's modest tightening will likely continue to drive Equities lower - … Continue reading The Baby Will Get Thrown Out With The Bath Water