Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

AI Summary. Analysts estimate that each 1% of GDP of Federal Reserve balance sheet reduction is associated with roughly a 2 basis point rise in 10-year Treasury yields, implying about 20bp of upward pressure in total. That is equivalent in its effect on financial conditions and growth to a little under one interest rate hike.

Manuel Abecasis and Praveen Korapaty Goldman Sachs
Date Posted:

A @GoldmanSachs forecast argues the FOMC will not moderate the pace of balance sheet reductions until late 2024. They write that the reduction is “likely already anticipated by financial markets” and therefore fully reflected in current rates.

How much do central bank balance sheet reductions raise long-term yields?

Core argument: A rule of thumb derived from a range of studies holds that balance sheet reduction equal to 1% of GDP is associated with a roughly 2bp rise in 10-year Treasury yields.

We continue to expect the Fed’s balance sheet runoff to have modest effects on interest rates, broader financial conditions, growth, and inflation. Our rule of thumb derived from a range of studies is that 1% of GDP of balance sheet reduction is associated with a roughly 2bp rise in 10-year Treasury yields. In total, our projections for runoff imply that balance sheet normalization will have exerted around 20bp worth of upward pressure on 10-year yields since runoff started. Together with our rule of thumb that a 25bp boost to 10-year term premia from balance sheet reduction has roughly the same impact on financial conditions and growth as a 25bp rate hike, this implies that the total runoff process should have the effect of a little under one rate hike.

Takeaways by Macro Roundup® AI

  1. A rule of thumb derived from a range of studies holds that balance sheet reduction equal to 1% of GDP is associated with a roughly 2bp rise in 10-year Treasury yields.
  2. Projections for the Fed's runoff imply balance sheet normalization will have exerted about 20bp of upward pressure on 10-year Treasury yields since runoff began.
  3. Under the rule of thumb that a 25bp boost to 10-year term premia from balance sheet reduction affects financial conditions and growth roughly as much as a 25bp rate hike, the total runoff process amounts to a little under one rate hike.

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