9 Charts On Quantitative Tightening

Quantitative tightening has been running at full speed for almost 5 months now (and for a total period of 17 months since commencing in October 2017), and with QT finally coming front of mind for investors I thought it would be a good idea to update some of the charts from my previous "8 Charts on Quantitative Tightening" article (as well as a couple of new charts and indicators). 

It's also very timely to revisit this topic as the Fed has begun to get distinctly cold feet on rate hikes and QT (quantitative tightening, aka "balance sheet normalization" or "balance sheet runoff"), and speculation is growing that QT1 may get put on ice as the Fed approaches its apparent deemed 'neutral balance sheet level' (my term - borrowing from the neutral Fed funds interest rate level concept), or as Fed Chair Powell mentioned, the "normal balance sheet".

Indeed, as Powell also noted: "The Committee is now well along in our discussions of a plan to conclude balance sheet runoff later this year. Once balance sheet runoff ends, we may, if appropriate, hold the size of the balance sheet constant for a time to allow reserves to very gradually decline to the desired level as other liabilities, such as currency, increase. We expect to announce further details of this plan reasonably soon."

In addition to this, the Fed has broadly communicated and acknowledged that the balance sheet will remain an important tool of monetary policy (albeit with a back seat to the Fed funds rate). Hence while we may be near the end of QT1, it's not out of the question that we wont someday encounter a QT2.  For now though, here's some QT charts to think about...

The key takeaways on the state of quantitative tightening (or QT) are:

-QT is running at a total maximum monthly pace of US$50B and so far the Fed has reduced its total assets by almost US$500B and holdings of treasuries by almost $300B.

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