$50 Billion Run-Off
What might at some point prove more effective is consideration of adjusting the current pace of running off as much as $50 billion of the Fed’s bond portfolio each month.
“The balance-sheet discussion will take on additional prominence into 2019,” wrote Guha, who previously worked at the New York Fed. “With barely half a hike priced in for 2019 there is no longer a sizeable buffer in terms of expected Fed rate hikes that could be taken out if the outlook were to darken materially from here.”
Some see signs that the shift from QE to QT has had an impact on markets this year. While no major economy saw a recession, 2018 has seen the broadest array of assets post negative returns in Deutsche Bank analysis last month going back more than a century.
“The Fed first of all has to become a little bit clearer to the markets and the public about where the balance sheet should be,” said Glenn Hubbard, a Columbia University economist who served in the White House under President George W. Bush. “The second is to recognize that we are shifting to a more quantitative tightening regime and to try to give a sense of what’s the net tightening” of QT and rate hikes taken together, he said on Bloomberg Television.
This article was provided by Bloomberg News.