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By Michael S. Derby
New York (Reuters) – For two days of testimony this week before Congress, the president of the Federal Reserve, Jerome Powell, indicated that there is no imminent end in the process of decreasing the balance of the central bank, since some banks are They have moved to delay their own completion date for a process commonly known as quantitative hardening.
“I think we have a path to go” to reduce the size of the bond holdings of the Central Bank and there are still no signs that market liquidity has been reduced enough to affect the reduction of Fed in bond holdings Treasury and mortgages, Powell said Wednesday on Wednesday.
Powell’s observations on quantitative tightening, or QT, occur when the Fed has thrown more than $ 2 billion of its holdings. The Fed seeks to extinguish the liquidity that added to the markets during the COVID-19 pandemic, when it bought billions of bonds to stabilize the markets and the economic growth of goose by reducing long-term indebtedness costs.
Since the FED began the QT, it has been seeking to reduce the general liquidity of the market, more clearly measured at the level of bank reserves, at levels that allow normal levels of volatility of the interest rate of the monetary market, while allowing The control of the Fed company on the federal fund rate, its main tool to influence the impulse of the economy.
The Fed is also trying to avoid a repetition of the events of September 2019 when, during its last chapter of QT, too much liquidity of the system was eliminated, which requires that the Fed begins to add it aggressively.
The Fed has taken a series of measures to prevent this from happening again, such as slowing down the rhythm of its reduction and establishing new liquidity facilities, while providing more guidance on the factors that you are observing. But he has struggled to offer a lot of guidance on when he can stop the QT, except to say that the day does not seem imminent.
In recent days, some banks have delayed their QT game estimates in relation to the most recent consensus, which observed a June stop date.
“Recent communication suggests that the FED is content to allow the QT to continue working despite the low visibility potential in the reserve demand in the coming months due to the dynamics of the debt limit,” Goldman Sachs economists said in A report on Friday.
The banks of the bank said that although they expected the Fed to end the reduction at the end of the second quarter, they now see that this happens at the end of the third quarter, with the treasure that remained stopping at the end of the second quarter and the mortgage race ended In the third quarter.
Morgan Stanley economists also kicked the Can Qt along the way.
