Fed Unfazed by Bond Rout, Plans to Continue Reducing Balance Sheet Despite Tighter Financial Conditions

Bond rout unlikely to stop Fed from reducing $100B in bonds monthly from $8T balance sheet as measures show market is orderly.

Higher rates are in line with Fed's goals to slow growth and lower inflation. Ending QT could relieve rate pressure.

Fed officials so far unconcerned about bond moves. Say it will impact economy but is expected.

Some see rationale for ending QT in 2023 as it drains reserves, but no set timeline. Estimates range from mid-2024 to 2025.

Banks already scarce on liquidity, so QT may only last until overnight reverse repo is substantially depleted, maybe 12-13 months at current pace.