“It puts a pincer on equities and bonds at the same time,” said Alex Lennard, investment director at Ruffer. It could be “the sort of event you tell the grandchildren about.”
The Fed doubles the pace of its bond runoff this month, aiming to reduce its Treasury holdings by $60 billion and its mortgage-backed securities by $35 billion monthly.
Those concerned about the impact include hedge fund giant Bridgewater, which thinks markets will fall into a “liquidity hole” as a result.
The last time QT was tried, under Fed Chairwoman Janet Yellen, it went perfectly—until it suddenly didn’t
Then in 2019 the overnight lending market—crucial to the financial system and reliant on plentiful reserves—seized up, forcing an emergency rescue to prevent a full-on credit crunch.
James Mackintosh WSJ 3 September2022