Posted 12/19/2023, 5:36:00 PM
Fed Balance Sheet Reduction Risks Liquidity Crunch
- Fed's balance sheet reduction could spark liquidity crisis as Treasury issuances stay high
- So far, Fed has shrunk balance sheet by $1.3 trillion, but minimal impact on bank reserves
- In 2024, Fed will likely drain reserves held by US banks, sharply reducing liquidity
- Decline in liquidity will restrict lending, hurting economy and stock market
- Powell pledged to continue tightening unless economy collapses, so don't expect QT to end