On June 1, 2022, the Jay Powell Chaired Federal Reserve formally commenced Quantitative Tightening (QT). The Fed’s balance sheet had topped $8.9 trillion. Consumer price inflation was rocketing towards a 40 year high.
“Brace yourself,” advised JPMorgan Chase CEO Jamie Dimon at the time.
The master plan was for the Fed to reduce its holdings of Treasuries and mortgage-backed securities by a combined $47.5 billion per month for the first three months. Then, in September 2022, this monthly reduction was increased to $95 billion (i.e. $60 billion in Treasuries and $35 billion in mortgage-backed securities).
Aside from the abrupt $400 billion spike in March of 2023, when Silicon Valley Bank, Signature Bank, First Republic Bank all failed in rapid succession, QT has continued according to plan. Today, the Fed’s balance sheet stands at just under $7.7 trillion.
The next FOMC meeting is on January 30 and 31. And the scuttlebutt from the Wall Street Journal is that the Fed’s now considering a change of plans: Continue reading