Fed to end QT


TS Lombard with the note.

The Fed learned in 2019 that there is a functional limit to how small the balance sheet can be. Too small is when available cash is insufficient to meet O/N financing for the securities market–the plumbing stops working.

What has gotten the FOMC to sit up now and take notice about the current QT is the return of month-end spikes in the repo rate for GC that are getting larger (Chart1).

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.