What Happens When the Fed FINALLY Reduces Its $4.5 Trillion Balance Sheet?

Bloomberg Barclays Global Aggregate Credit index yield spread

So, there we have it. Deflation has started. The Federal Reserve announced last month that they would start to reduce their $4.5 trillion balance sheet in October, thereby starting the process we call Quantitative Tightening (QT). As expected, they are aiming to do it gently and quietly, by not reinvesting bonds as they mature, starting with sums of around $6 billion of Treasuries and $4 billion in Mortgage-Backed Securities (MBS). The scale of non-reinvestment will gradually increase. Once in full swing, the Fed’s balance sheet could reduce by up to $150 billion each quarter. Conventional analysis might conclude that the […]

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Some Thoughts Before The Fed Meeting

The Fed is back at it again on Wednesday of this week. And as with every Fed meeting, we get to play the “will they” or “won’t they” game.   Our team at Macro Ops believes there’s a very low probability of a rate hike this meeting. Now we don’t believe in a near zero percent probability (like the one the market is pricing in) but a low chance nonetheless. The terrible payroll reading plus the low UMich inflation expectations number (a favorite of Yellen’s) will likely stay the Fed’s hand. And this is not to mention the Brexit vote coming […]

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