The Fed is about to double the pace of quantitative tightening

The Fed is about to double the pace of quantitative tightening
The Fed is about to double the pace of quantitative tightening

Annabelle Drollers, Bloomberg

23:00 | September 1, 2022
Updated: 01:07 | September 2, 2022

Translator:
Maria Popova

The Federal Reserve is on track to double the pace of quantitative easing as early as this week. The balance sheet will start shrinking by $95 billion a month—that’s $60 billion in bonds plus $35 billion in mortgage-backed instruments.

Here’s why this is unique: To shrink its bond holdings by $60 billion a month, the Fed would have to grab piles of bonds before they mature and put them on the market to fill those cracks in the graph.

For this month, sales of $60 billion will be needed, for the next – just under $14 billion.

The amount varies from month to month, but it will effectively drain liquidity from the system.

One possible consequence is that money market funds may take some of that $2.2 trillion in cash, partly in the Fed’s repo program, to buy the bonds that are on sale in the market.

We may be seeing a gradual decline in the use of this program from current record levels. Here’s something important to keep an eye on in the coming weeks and months.

The article is in bulgaria

Bulgarian

Tags: Fed double pace quantitative tightening

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