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Unraveling QE “Later This Year” Gets Serious

  • When the FedRes shrinks its balance sheet who is going to buy what the FedRes sells? Interest rates will definitely go up. The first to panic sell wins. The last to panic sell are the suckers left holding the bag.
  • Unraveling QE “Later This Year” Gets Serious
    by ,
    New York Fed President William Dudley is on board.
    Today it was New York Fed President William Dudley’s job to hammer home the message. He’s one of the most influential members on the policy-setting Federal Open Market Committee. His New York Fed deals with the securities that are on the Fed’s balance sheet as a result of QE. And he said the Fed might start reversing QE this year.

    With this call to shrink the Fed’s balance sheet, he is following in the footsteps of other Fed heads, including Cleveland Fed President Loretta Mester, San Francisco Fed President John Williams, and most notably Boston Fed President Eric Rosengren – a former “dove” who has been publicly fretting about bubbles in commercial real estate and housing and the risks they pose to “financial stability.”

    So this theme unraveling QE, not in the foggy future but this year, is picking up momentum. There is a lot to unravel: the Fed’s $4.5-trillion balance sheet holds $1.8 trillion in mortgage-backed securities and $2.4 trillion in Treasuries. As they mature, the Fed replaces them by buying more.

    Dudley was talking to Bloomberg TV today. Everything was couched in the caveat that it “really depends on the data.” But it included a hue of frustration with the credit markets:

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April 3, 2017 - Posted by | Economics | , , , , , , , ,

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