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The Fate of Quantitative Tightening: Not Solely in the Hands of the Fed
585 Views03 Dec 2023 08:25
SUMMARY
- The twin pillars that underpinned US monetary policy since the global financial crisis made policy normalisation difficult. Investors believe quantitative tightening (QT) ceases once the federal funds rate is lowered.
- Contrary to the fears encountered during the taper tantrum in 2013, QT has not dramatically tightened US financial conditions since 2017, thereby raising questions about whether any cessation is required.
- High levels of bank reserves do not guarantee financial stability, but elevated Treasury borrowing and lower repo market liquidity pose threats that could ultimately force the Fed to end QT.
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