September 12, 2022
I would like to call your attention to an article in today’s New York Times, by Joe Rennison, with the headline: “Fed’s Fading Support Puts Bond Market Back at Risk.” (Monday, 9/12/2022)
As the Fed tries to reduce its swollen balance sheet of $9 Trillion Dollars (up from the $4 Trillion Dollar level of 2008,) it may cause unanticipated liquidity problems, as buyers become more cautious about price stability.
The Fed is beginning a program of allowing $60 Billion a month of Treasury and Mortgage Backed Securities in its portfolio to mature, rather than replacing them with new purchases. This is known as Quantitative Tightening (QT), the exact opposite of the support program conducted these past years of Quantitative Easing (QE).
The Fed’s last attempt to trim its Balance Sheet with a QT program, in 2018 was ended abruptly, when Stock and Bond markets sold off. Again, the Fed made be forced to pivot in the face of market declines, but the growing inflation forces, made that change more difficult this time.
Reading the full article is worth your time. Send me an email if you are not able to access the article on line. Another article on this subject can be found in the 9/10/2022 issue of Barron’s weekly newspaper.
Again, this is for educational information only and is not to be considered as investment advice. This author believes an informed investor is a better investor and this weekly report is designed to help provide worthwhile information for your consideration.