Currently, the Fed is using two cards at the same time, QT (currency contraction through OMO transactions) and base rate cuts (currency expansion through credit generation).
The 👉 QT is quite direct,
👉 Adjustment of the benchmark interest rate takes about 14-20 months to take effect.
This appears to be an attempt to mitigate potential recession risks while curbing inflation (= catch two rabbits).
It also deals well with the psychology of ant investors and institutional investors/traders through communication with the public, such as suddenly making hawkish remarks like last time.
👉 It is not a crash, but a healthy market correction, allowing it to wipe out the long-term growth plate.
*Also Read: This attempt to promote price stability by verbally adjusting expectations for the Fed’s future moves is called jawboning in jargon.
J Powell often says, “I’m walking a very difficult narrow path / I’m walking a tightrope.” I don’t know what the public thinks, but I think he’s doing the best job so far among the Fed chairmen. One of the Fed Williams comments on the Fed’s balance sheet
- No Prediction When Balance Sheet Contraction Will Stop.
The timing of QT interruption is not expected. - Financial Sector Reserves Still Look Abundant.
The financial sector’s reserves are still overflowing.
->There are three expressions for excessive and insufficient reserves.
Scarce, Ample, Abundant
Shortage, Enough, Overrun (Nöffical Interpretation) - Fed Has No Current Plans For Asset Sales.
The Fed has no intention of selling its holdings at this time.
-> The Fed’s QT is not an active QT to sell your holdings, but a passive QT to settle maturities when they come to maturity. It means you won’t be actively selling MBS, government bonds right now.