Pro Perspectives 4/6/22
April 6, 2022
The minutes from the March Fed meeting were released today, laying out a plan for reducing the Fed's balance sheet. Translation: there will be less liquidity in the economy (tighter money).
Let's take a look at how we got here.
You can see above, the global financial crisis response included three iterations of QE, and resulted in the Fed adding $3.5 trillion in assets to the balance sheet. And they were left with an economy that could barely muster 2% economic growth.
Still, they tried to normalize rates and shrink the balance sheet (i.e. quantitative tightening or "QT"). From 2017 to 2019, they allowed about $800 billion of assets to mature. You can see that framed in the box in the chart above.
By the end of 2019, the Fed was forced to restart QE. Why? Because the overnight lending market did this …