TBX - Pre-FOMC: A Different Type Of Taper

2024-04-18 04:00:00 ET

Summary

• Although no rate cuts yet, the Federal Reserve is considering reducing the pace of quantitative tightening (QT).
• The Fed’s ultimate goal is to have only Treasuries on its balance sheet.
• The reduction in the Fed’s securities holdings through QT has resulted in a decrease of more than $1.5 trillion, from a peak of $8.5 trillion in May 2022 to $6.97 trillion as of the writing of this document.

By Kevin Flanagan

Following last week's "hotter" than expected CPI release, the sole focus for the money and bond markets was to, yet again, dial back their Fed rate cut expectations. However, there is another aspect of Fed policy decision-making that has been flying under the radar, and that involves its balance sheet. With the May 1 FOMC meeting only two weeks away, I thought it would be a good idea to discuss this part of monetary policy because, at this point, it appears as if this facet may make headlines well before actual rate cuts do....

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