This time around, quantitative tightening needn’t destabilize money market
The US Federal Reserve faces a monetary-policy challenge above and beyond determining the right level of short-term interest rates: how much and how quickly to reduce the more than $7 trillion in securities still on its balance sheet — holdings it amassed in previous years to help stimulate growth.
Back in September 2019, such quantitative tightening didn’t end well.
Since April 2022, the Fed has been in tightening mode, with its holdings of Treasuries and mortgage-backed securities currently running off at a rate of about $75 billion to $80 billion a month.
Officials are already discussing when to slow the pace of quantitative tightening.
The greatest danger is that markets will incorrectly interpret a decision to slow the runoff rate as a harbinger of rate cuts.
Bill Dudley Blooomberg 17 januari 2024
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