Fed’s Powell sees ways to continue to shrink holdings

Written by Michael S. Derby

New York (Reuters) – Jerome Powell, Jerome Powell, indicated two days of certificate this week. The process is usually referred to as quantitative tightening.

“I think we have ways to go” when reducing the volume of central bond property, and there are no signs that the market liquidity has shrunk enough to influence the Federal Reserve reduction in the holdings of treasury and mortgage bonds. .

Powell notes about quantitative tightening, or QT, as the Federal Reserve threw slightly more than $ 2 trillion of its property. The Federal Reserve seeks to extinguish the liquidity it added to the market during the Covid-19s, when it bought trillions of bonds to achieve stability in the markets and the growth of economic gobengies by reducing the long-term borrowing costs.

Since the Federal Reserve began QT, it has been seeking to reduce the total liquidity of the market, and it is more clearly measured in the level of banking reserves, to levels that allow normal levels of interest rate fluctuations in the money market, while allowing the FBI control of the price of federal funds, its main tool To influence the momentum of the economy.

The Federal Reserve also tries to avoid restarting the events of September 2019 when a lot of liquidity was removed during the last semester of the QT of the system, which requires the Federal Reserve to start adding it again strongly.

The Federal Reserve has taken a number of steps to avoid this again, such as slowing the pace of its withdrawal and preparing new liquidity facilities, while providing more guidance on the factors you see. But she is struggling to make a lot of directives about when she can stop QT, except for saying that today does not seem imminent.

In recent days, some banks have pushed the end of their QT game in relation to the latest consensus, which were looking for a date in June.

“The recent communication indicates that the Federal Reserve is satisfied with allowing QT to operate despite the possibility of lower visibility in the reserve demand in the coming months due to the dynamics of debt reduction,” economists in Goldman Sachs said in a report on Friday.

Banker predictors said that while they expect the Federal Reserve Bank to end at the end of the second quarter, they now see that this happens at the end of the third quarter, with the cabinet bonds stopped at the end of the second quarter and the mortgage that ended in the third quarter.

The economists of Morgan Stanley QT also kicked the road.

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