Kevin Muir at Bloomberg argues that quantitative easing clearly boosted financial assets. But it would be a mistake to think that $95 billion of quantitative tightening every month would have the opposite effect…(Bloomberg)
There is worry about the scheduled increase in QT could have on stock prices, but the unique situation with the large reverse repo balance could mute any potential affect. If the Fed had securities on its balance sheet that matched the maturity profile demanded by the institutions engaging in reverse repos, it could sell an amount equal to the total reverse repo balance to these institutions, reducing the need for reverse repos and elicit no change in the financial or real economy. Though there might be a duration mismatch in the type of assets demanded, an actual withdrawal of liquidity is not the problem.
On top of that, the actual amount of monthly QT is not that large. Given that the reverse repo balance is $2.18 trillion, and the Fed is scheduled to reduce its balance sheet by $95 billion per month, it would take almost two years to work off reverse repos solely though QT…