Finally FINALLY quantitative tightening (QT) will end. For those that do not know what it is its it is when a Central Bank (the Fed) reduces the financial assets it holds on its balance sheet by selling them to the financial markets. This type of policy is bad because it decreases asset prices and raises interest rates.
The 25 point cut is interesting because when you read the notes there were three different camps people were in. While by far the majority voted for the 25 point cut. Stephen Miran once again wanted a 50 point cut. Then there is Jefferey Schmid who wanted NO RATE CUT. To me the wildest idea of them all.
The implication of QT being bad is that it's good for the economy to have an increasing amount of assets held by the Central Bank rather than the private economy.
You should probably give that some more thought as a universal statement.
Prices and interest rates play important roles in coordinating economic activity. It's not as simple as down=good or up=bad.
as long as the increase is 3 percent or lower
QT was justified in 2021 and 2022, the problem is that Powell was hoping inflation would be 'transitory' in 2021 and by 2022 he lost all credibility regarding inflation
So much new money was created during Covid that they needed QT to mitigate what would have been much worse inflation
The problem is that QT started too late and ended too late
3 years of QT is too long plus diminishing marginal benefit
Since I'm in the End the Fed camp, no amount of QT is too much for me.
The goal should be stability not QE or QT
The goal should be market prices rather than central planning
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This was supposed to be the BLS guy, not sure why that got rugged, Bannon had been introducing us to him for years... maybe the J6 hit piece worked?
Makes an interesting point about MBS's, would be interesting timing given the Fannie/Freddie situation
If the Fed wants to lower mortgage rates, buy MBS not Treasury
NO RATE CUTS
My suspicion is that they will cut 5 times before March, as much as they can, without a single .5 rate cut. At each juncture they'll pretend it's the last or that no more are likely, and they'll make up some reason to justify the cut that is local to the period, some recent data about inflation or jobs - blame AI redundancies or something.
But the truth is that private equity, including commercial real estate, of the subprime of 2026. They don't have the ammunition to curb and complete market panic, so they desperately want to avoid generating our contributing to one.
On the other side of this crisis banks will be adapting to the use of bitcoin as loan collateral, and businesses will be encouraged to purchase bitcoin in case they need credit rapidly at decent rates, for bridge loans in a future market correction. Some regional banks will have gone under by this point, and credit will freeze up because private equity has been playing fast and loose with the collateral system.
Ending QT is more important than 25 basis point pussyfooting cut
3 years of QT is too long
QT should have started in 2021 and should have ended after 12 or 24 months