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Pragmatic Capitalism

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Fed’s balance sheet

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The fed will beginning to unwind its $4.5 trillion balance sheet before the end of the year. “The uncertainty surrounding this unprecedented decision will source a stiff headwind in the face of the economy which has yet to simmer,” Jeremy Klein, chief market strategist at FBN Securities, said in a note Monday, referring to the balance-sheet reduction.

In your opinion, will the unwinding cause “stiff headwinds,” and if so why?

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Posted by John M. Wilkins
Posted on 06/19/2017 2:23 PM
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Depends on how it’s done. If they undwind the portfolio quickly then it could shock the markets. I suspect they won’t do that. In that case they’re more likely to be a marginal price impact so I don’t see what the fuss is all about.

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Cullen Roche Posted by Cullen Roche
Answered on 06/20/2017 12:38 PM
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    Cullen,

    You have explained often (and well) how QE is simply an asset swap and does not ‘print money.’ That being the case, why does it matter if QE is unwound quickly or more slowly? Still trying to understand the big picture …

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    Posted by Jay Hattler
    Answered on 06/24/2017 10:34 AM
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      Hi Jay,

      With a balance sheet of this size they could cause a big market move. So, let’s say they just started dumping T-Bonds. What would happen? It could cause some short-term disruption. I don’t think they’ll do this. But if there’s a risk to unwinding then this is it…

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      Cullen Roche Posted by Cullen Roche
      Answered on 06/24/2017 2:54 PM
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