För ekonomnördar: From QT to QE again
The Fed starting after the 2007-08 crisis increased its asset holdings by acquiring large quantities of Treasury debt and mortgage-backed securities.
Following the introduction of quantitative easing, the Fed expected banks to meet their emergency-liquidity needs by holding larger reserve balances at the central bank.
This problem has emerged as the central bank has embarked on successive attempts at quantitative tightening—shrinking its balance sheet.
Commercial-bank reserve deposits may at some point fall below the level banks think they need. No one is quite sure where that line is. But if reserve deposits fall below it, interest rates could shooting far past the target the Fed sets for this, the federal-funds rate.
This happened in autumn 2019, and officials now seem to be worried by recent similar signs of unrest in that interbank market. Hence their move last week to expand their purchases of Treasurys,
The Fed presents all the foregoing as a technocratic matter of little larger importance. But the central bank’s resistance to calling it “quantitative easing” doesn’t change the economics of it.
The Fed finds itself relaunching a form of QE when it claims it’s still in inflation-fighting mode.
Joseph C. Sternberg WSJ Dec. 18, 2025
https://www.wsj.com/opinion/the-fed-quietly-announces-its-no-longer-steering-the-ship-d58a609c
They didn’t see the slowdown coming, and only after markets dropped 20% in December did they change their policy stance and have now cemented a dovish stance for years to come.
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