Can a central bank make $2.5trn of cash vanish without anyone much noticing?
QT is as QE in reverse.
Just as QE involves creating central-bank reserves to buy bonds, so QT involves removing reserves as the central bank pares back its holdings.
Initially qt drains money from a commercial-banking system that is awash in liquidity; as it continues, however, liquidity gets steadily tighter, and funding costs for banks may soar without much warning.
Some banks, having recently lost deposits, have turned to the federal-funds market to borrow reserves from other lenders in order to meet regulatory requirements. Daily borrowing in the fed-funds market in January averaged $106bn, the most in data going back to 2016.
The Economist 9 Fabruary 2023
https://www.economist.com/finance-and-economics/2023/02/09/the-federal-reserves-25trn-question
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