Will quantitative tightening have the opposite effect on markets as Quantitative Easing? This is a very pertinent question at the moment.
By way of background, here's the Policy Announcement on it's balance sheet reduction that starts next week. https://www.federalr...ry20170614c.htm
Basically Quantitative Tightening starts at 10 billion per month and increases to 30 billion per month over time. Significantly it will not only reduce the Fed's holdings, but also the amount of securities available to borrow from the Fed, a monetary / liquidity expansion mechanism that has exploded in scope over the last two years (the Fed is making it's security's holdings available to borrow and for re-hypothecation by banks and big dealers.) Some who track this say the Fed's daily operations has been a key to predicting short term market moves
Here's the Fed Statement on reducing it's balance sheet.
"Effective in October 2017, the Committee directs the Desk to roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing during each calendar month that exceeds $6 billion, and to reinvest in agency mortgage-backed securities the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month that exceeds $4 billion. Small deviations from these amounts for operational reasons are acceptable."
It's been a little hard to judge how the stock and bond markets might react to the Fed's balance sheet reduction. Here's a sample discussion of the process for and the reaction so far. http://www.investope...-balance-sheet/
However, if anyone has found any cogent articles, videos, interviews, etc on the macro impact of the Fed's Quantitative Tightening to help get a good fix on the macro impact it might be helpful to share those.
My contribution would be Shane Smoley's interview ( who follows this closely) on Larry Pesavento''s show on TFNN.com yesterday was very adamant that the balance sheet reduction will have a significant impact. @ 25 min mark at https://www.youtube....E&v=whqhF2kutPQ
ATB
Geo
Edited by Geomean, 29 September 2017 - 09:52 AM.