Thursday, June 2, 2022

Keeping Track Of QT (if and when it happens)

The Fed is expected to start reducing the size of its balance sheet by allowing bonds in its portfolio to mature without renewing them, aka to start the process of Quantitative Tightening. The vast majority of its holdings are Treasuries and mortgage securities, so the chart below will be a handy way to keep an eye on what is actually going on.  It is the weekly change in mortgage (red line) and Treasury (blue line) holdings.

Looking closely, we can see that the Fed has stopped adding Treasuries (blue line at zero since April) and is edging very slightly into negative territory with mortgages. 

The bigger picture, in my opinion, is that the market is focusing on interest rate hikes almost exclusively and is largely ignoring QT.  I think, however, that today it is liquidity that is the main driver of markets, not rates.  And liquidity has not yet come down.  What will happen when it does?

I'll be updating this chart on a regular basis.

Keeping An Eye On QT


  1. Reverse repo stands at >2t. That's not good, right?

  2. It’s the market saying interest rates are going higher, so investors are keeping cash as short term as possible.


  4. sorry about the very long link.... seemed necessary to get the free article...

    anyway... the establishment now says 2% inflation is too low... how about we aim for 5%... maybe overshoot a little... 7-8%... hey, we are within margin of error again... =)