We’ve made it to November. The Fed continues its Quantitative Tightening (QT) path. With each passing day the cries for a Fed Pivot grow. On some level we must accept that the economic outlook for the near-term future does not look good.
In 4 Months of QT Down, on October 5 the total balance sheet was standing at $8,759,053,000,000 ($8.76 trillion). The latest release on November 2 the balance stood at $8.68 trillion.
The reduction in October is as follows:
- On October 5 the US Treasury (UST) balance was $5.634 trillion. The following month, as on November 2, it stood at $5.575 trillion for a decrease of roughly $59 billion.
- On October 5 the Mortgage-Backed Security (MBS) balance was $2.698 trillion. The following month, as on November 2, it stood at $2.679 trillion for a decrease of roughly $19 billion.
Almost $80 billion in a month is not terribly bad for the Fed since the maximum amount they could reduce by is just under $100 billion a month, and this may have been one of the largest reductions this year.
Any mention of a Fed Pivot, or even consideration of increasing the balance sheet is still not officially on their radar. In his press conference last week Powell did not use the word Pivot, instead reiterated how they are committed to “bringing inflation back down” to their 2 percent goal.
But he did mention uncertainty around the pace of rate increases and how high they might eventually climb.
At some point… it will become appropriate to slow the pace of increases, as we approach the level of interest rates that will be sufficiently restrictive to bring inflation down to our 2 percent goal. There is significant uncertainty around that level of interest rates.
Reminded us that:
Even so, we still have some ways to go, and incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected.
With much uncertainty concerning the future, Powell remains committed to downplaying the inevitable downturn. After raising rates by 75-bps last week, he was asked again about the soft landing. He acknowledged the landing window has narrowed, then eventually answered:
I think no one knows whether there’s going to be a recession or not, and if so, how bad that recession would be.
How bad something will be in the future can only be a best guess. Correctly speculating how bad can be quite lucrative. However, the important takeaway is to first understand that, whether it’s called a recession or depression, it’s (probably) not going to be the end of the world, even if our economic future looks bleak. The second thing to understand is that this is all primarily due to government intervention, aided by their anti-capitalist central bank. Mainstream academics and the media would say this to the general public, but how often have they ever provided the general public with useful information?
