Now Worry About the Fed Unwinding Its Balance Sheet
The last time the Fed attempted to slowly halt the process of unwinding its balance sheet — a process known as quantitative tightening, or QT, its efforts lasted only months before ructions in 2019 in the funding markets prompted a re-think.
During that episode, there was already evidence that bank reserves — a bellwether for how it conducts policy — were scarce.
For over 18 months, the Fed has been letting as much as $60 billion in Treasuries and as much as $35 billion in agency debt holdings mature every month.
Bloomberg 5 January 2024
Treasury traders are standing firm behind wagers that the Federal Reserve will cut interest rates sharply in 2024
even as a bunch of employment and service-industry data whipsawed yields Friday.
Swap contracts tied to Fed meeting dates are again pricing in almost six quarter-point cuts and see a more than 70% chance of a quarter-point policy-rate decrease in March
Bloomberg 5 januari 2024
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