Bond rout won't end Fed balance sheet cuts, but endgame bubbling into view
© Reuters. FILE PHOTO: An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst/File Photo
What’s more, pricier credit is in line with central bank officials’ desire to have interest rates at levels restrictive enough to slow growth and lower inflation back to their 2% target. The QT process “is just playing a minor role in the rise” in market rates, Bostjancic said, and those gains are “really due to the markets embracing the Fed’s higher-for-longer guidance” on rates.
Meanwhile, in a Bloomberg podcast out Thursday Chicago Fed President Austan Goolsbee said the market move "is not a puzzle... it's clear that the long rates coming up is what you'd expect."San Francisco Fed President Mary Daly on Thursday said with the rise in market rates, “the need for us to take further action is diminished because financial markets are already moving into that direction and they've done the work.
Michael Barr, the Fed's top bank overseer, said on Monday the Fed is"attentive" to the reserves issue and noted"that's something that we are going to feel our way towards - we are not anywhere close to it now, today."The Fed's first stab at QT ended abruptly in September 2019, when it went too far and lost control of the target rate. Some worry that could happen again.
Mark Cabana, rates strategist with Bank of America, said QT likely has around a year to go and that reserves are already more scarce than many recognize because banks are already hoarding cash.
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