Post by
Torontojay on Jun 26, 2024 8:00am
The Fed cannot stop QT
Unless the yield curve disinverts. It would be an error to stop quantitative tightening when the yield curve is still inverted. If the Fed becomes a buyer of MBS it will lower yields and widen the gap it has with Fed funds. The yield curve is suppose to normalize with the long end of the curve higher than the front end. The task for Fed officials to try and normalize the curve would be increasingly more difficult if they stop QT. In other words, I believe the Fed is stuck between a rock and a hard place. They have to continue with QT until the money supply retraces its historical trend line.