Central banks are starting to shrink their balance sheets,
... but fund managers say they have no clue as to how QT will play out.
“Over the past 10 years there has been large liquidity in the US and everywhere else, and now investors know it’s finished. It’s over.”
The Fed staged a dress rehearsal for QT beginning in 2017, in a process then Fed chair Janet Yellen said would be so predictable it would be like “watching paint dry”.
In fact it ended up having to be abandoned after September 2019 when the plumbing of the financial system gummed up and overnight borrowing costs skyrocketed.
A widespread view that the exercise risks destabilising the US government bond market, the foundation upon which global markets are built.
Katie Martin and Colby Smith FT 10 July 2022
https://www.ft.com/content/435a5e35-bf30-4518-a4fc-a6d5c2d66076
Bank of England reducing its balance sheet while simultaneously raising interest rates...
... takes monetary policy into uncharted territory.
Policy makers could quickly find themselves in the crosshairs, blamed for exacerbating the economic slowdown they’ve forecast.
While it says it doesn’t expect QT to have much influence on monetary conditions, in reality it’s guessing.
Marcus Ashworth Bloomberg 12 augusti 2022
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