Big central banks are going to keep shrinking their balance sheets next year
... pulling money out of the financial system, even if the fight against inflation looks to be won and interest rate cuts begin. Their aim is to restore the role of markets in supplying and setting the price of money.
It’ll be a bumpy ride. The Federal Reserve and others will be testing a great uncertainty: Just how much in central bank funds do banks need to feel comfortable?
The last time the Fed got near this threshold in September 2019, short-term interest rates in money markets went haywire, spiking higher and leaving some hedge funds scrambling for cash.
Bloomberg 5 December 2023
Fed balance sheet shrinks by $1tn
By removing one of the largest buyers from government bond markets, the Fed’s balance sheet reduction — known as quantitative tightening — adds to the supply of debt that private investors have to absorb.
https://englundmacro.blogspot.com/2023/08/fed-balance-sheet-shrinks-by-1tn.html
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