The Fed’s Balance Sheet Reduction (QT) Update
The Fed held its Balance Sheet holdings steady this week, reducing its Treasury positions by only $3 billion. It would be wise for the Fed to keep its QT program active. I prefer that the Fed tighten monetary policy by reducing the money supply through QT as compared to the Fed’s manipulation of interest rates by way of the Fed Funds rate. The Fed has no choice but to reduce its Fed Funds rate as the Treasury debt outstanding has ballooned to $34 Trillion and will climb higher. The cost of servicing that debt will climb as well. Treasury securities issued when the Fed Funds rate was 0-5% are being replaced by higher rate Treasuries as the older Treasuries mature. The average interest rate on the outstanding $34 Trillion of Treasury debt is 3.1%.
Treasuries: The Fed’s Treasury security holdings declined by $3.0 billion the week-ended December 13th and declined by $33.4 billion on a rolling 4-week basis.
Agencies: The Fed’s Government Agency security holdings declined by $133.9 million over the same period and declined by $16.0 billion on a rolling 4-week basis.
The Fed’s balance sheet holdings: https://www.newyorkfed.org/markets/soma-holdings
Excel file: Our Excel file detailing the Fed’s holdings of Treasury and Agency securities: HERE.
