The potential stumbling block for risk assets is likely not the Fed, but a renewed rise in longer-dated bond yields from a re-emergence of inflation and an extended QT. The supply of Treasuries to private investors may be larger than expected due to a longer-than-expected QT. Recall, QT increases the amount of Treasuries private investors must hold. While QT is expected to be tapered this year, bank regulators are proposing regulatory changes that could further extend QT. Regulators are forcing banks to regularly borrow from the discount window in an attempt to destigmatize the facility. This would provide all banks with easy access to reserves and largely remove the Fed’s concern of shrinking its balance sheet too much and creating market disruptions. A longer QT could translate into a few hundred billion more Treasuries for the market to digest over the next two years.
- Date Posted:
- January 22, 2024
Americans are rapidly becoming much more upbeat about the economy. Consumer sentiment surged 29% since November, the biggest two-month increase since 1991, the University of Michigan said Friday. Consumer sentiment leapt 13% in the first half of January from December, the Michigan survey said, after a sharp rise the prior month. The pickup in sentiment was broad-based, spanning consumers of different age, income, education and geography.