Forget Rates, Now Worry About the Fed Unwinding Its Balance Sheet

 

• Discussions come as funding market showing signs of angst
• Minutes show officials trying to determine unwind guidance

The memory of a corner of the funding markets blowing up more than four years ago is still seared into the brains of many market participants. That episode will also be back of mind for the Federal Reserve as it attempts to halt its balance sheet runoff again.

This past week, the minutes from the latest Federal Open Market Committee meeting revealed that the Fed is already thinking about its balance sheet. But the last time the Fed attempted to slowly halt the process of unwinding its balance sheet — a process known as quantitative tightening, or QT, its efforts lasted only months before ructions in 2019 in the funding markets prompted a re-think.

https://www.bloomberg.com/news/articles/2024-01-05/forget-rates-now-worry-about-the-fed-unwinding-its-balance-sheet