About the Video
Here’s why the $95 billion/month Quantitative Tightening program won’t go as smoothly as the Federal Reserve suggested – this suggests that a potential pivot to a dovish stance is in the horizon.
🔴 𝗦𝘁𝗮𝗿𝘁 𝗜𝗻𝘃𝗲𝘀𝘁𝗶𝗻𝗴 𝘄𝗶𝘁𝗵 𝗜𝗕𝗞𝗥 ➡️ Click Here
⬇️Timestamps:
0:00 → Overview of the Current Quantitative Tightening Program
1:43 → Reverse Repo Market
3:57 → How Rate Hikes Affect the US Economy and Its Budget
5:45 → When will the Fed Pivot?
The Federal Reserve’s quantitative tightening program has ramped up to its full potential in September, increasing from $47.5 billion to $95 billion per month. Economists are concerned this additional monetary tightening will have negative consequences on risk assets and the economy. Given that quantitative easing — buying US Treasuries and mortgage-related securities — helped firm the economic recovery and provided a lift for the stock market and other so-called risk assets, it seems quantitative tightening could have the opposite effect.
When the Covid-19 pandemic hit, the Fed engaged in an unprecedented QE program, buying about $120 billion of bonds every month. At the same time, the government enacted the largest fiscal stimulus in decades, which pushed trillions of dollars into the economy.
To amend the situation, the Fed expanded its reverse repo program, which consisted of the Fed delivering high-quality collateral with the promise to buy it back in a certain number of days at a higher price. Reverse repos are a liquidity draining operation, much like QT. They both involve the Fed decreasing the amount of cash in the system by increasing the amount of bonds.
Investors could see the Fed pivot to a dovish stance when the federal budget could not withstand the increasing interest expenses on debt (presently 7% of the entire budget). Such pivot would roll out in various stages and the Feds are expected to turn on the money printer and reintroduce quantitative easing again – which could also mean price inflation may persist for a longer period than expected.
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