“The plan is to allow 60 billion in U.S. Treasury bonds and 35
billion of mortgages to mature monthly. The Fed may let additional
Treasury Bills mature to reach their 95 billion goals if there are
not enough mortgages maturing or paying down in a given month. With
the step up in QT comes reduced liquidity for the banking system
and financial markets.
The 2018 episode of QT taught us that liquidity dries up over
time, and the effects take a while to be felt. The more illiquid
markets and market participants relying heavily on leverage will
feel the impact first. Given the 95 billion monthly paces of QT is
almost double the rate of 2018, the adverse liquidity effects may
occur sooner this time.
It is important to look back at 2018 when the Fed last tried to
reduce its balance sheet. The market response was a sharp selloff
into December, leading to a Fed bailout of hedge funds and banks
through
“reverse repurchases operations” in 2019. - RIA
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“The plan is to allow
Posted by EdZ on 3rd of Sep 2022 at 07:01 pm
“The plan is to allow 60 billion in U.S. Treasury bonds and 35 billion of mortgages to mature monthly. The Fed may let additional Treasury Bills mature to reach their 95 billion goals if there are not enough mortgages maturing or paying down in a given month. With the step up in QT comes reduced liquidity for the banking system and financial markets.
The 2018 episode of QT taught us that liquidity dries up over time, and the effects take a while to be felt. The more illiquid markets and market participants relying heavily on leverage will feel the impact first. Given the 95 billion monthly paces of QT is almost double the rate of 2018, the adverse liquidity effects may occur sooner this time.
It is important to look back at 2018 when the Fed last tried to reduce its balance sheet. The market response was a sharp selloff into December, leading to a Fed bailout of hedge funds and banks through “reverse repurchases operations” in 2019. - RIA Advice