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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
FED
In looking through dozens of sell-side previews for this week's Fed meeting, it's clear that there is a wide range of expectations for balance sheet runoff plans (or, "QT").
- Chair Powell said this month it would take two-to-four meetings to finalize the details, but that runoff this time will be "sooner and faster" than the 2017-19 experience. The latter included a 2017 start that took a year to "ramp up" to maximum cap rates (above which, maturing principal was reinvested) of $50B/month..
- This time, most analysts expect Fed balance sheet runoff to begin in Q3 2022 (Jul, Aug, Sep), and for the ramp-up period to be relatively brief (around 3-6 months on average).
- The median consensus for FOMC ‘peak’ balance sheet runoff is about $90-100B/month, with a range of $60-105B. The larger size reflects both the larger size of the balance sheet and the larger overall size of the Tsy and MBS markets.
- Most see a split that favors a quicker runoff in MBS proportional to Tsys (60/40, or 60/30) compared with their accumulation (80/40 in the Pandemic QE program).
- See table below for some estimates, sorted in descending order of peak runoff pace:
Source: MNI
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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