The Fed’s Balance Sheet Reduction (QT) Update
The Fed will soon wind down QT in my view (perhaps June of this year). The Fed’s QT effort has fallen far short of its QE effort over its two year life in terms of the monthly roll off Dollar amount versus the Fed’s $120 billion of monthly purchases from April 2020-May 2022. The big question is: will the Fed return to QE? The Fed as an institution has become increasingly progressive since Alan Greenspan. Thus, I believe the answer is “Yes”. If the economy hits a wall in March when the Fed yanks its BTFP bailout (absent another bailout), I suspect that the Fed will find itself at 0% and QE shortly thereafter. “Hitting a wall” translated means some sort of a credit event. Perhaps the banks will significantly pull back on credit when the BTFP expires as I expect them to. That would qualify as an event.
Treasuries: The Fed’s Treasury security holdings declined by $1.5 billion for the week-ended January 24th and declined by $65.8 billion on a rolling 4-week basis.
Agencies: The Fed’s Government Agency security holdings declined by $3.1 billion for the week-ended January 24th and declined by $3.1 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.
