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MNI INTERVIEW: Fed’s QT Could Trigger Liquidity Crunch-Rajan

(MNI) WASHINGTON

Ex-RBI chief says markets are underestimating the Fed's resolve to fight inflation.

The Federal Reserve’s plan to reduce its USD8.8 trillion balance sheet carries significant risks, including a possible liquidity crunch in financial markets that would have broad repercussions for corporate credit, former Reserve Bank of India Governor Raghuram Rajan told MNI.

Rajan, who co-authored a paper on the subject presented at this year’s Jackson Hole conference, said in an interview the Fed is too complacent about the prospect that Treasury market liquidity will vanish in times of stress, as it did with the onset of Covid in March 2020.

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The Federal Reserve’s plan to reduce its USD8.8 trillion balance sheet carries significant risks, including a possible liquidity crunch in financial markets that would have broad repercussions for corporate credit, former Reserve Bank of India Governor Raghuram Rajan told MNI.

Rajan, who co-authored a paper on the subject presented at this year’s Jackson Hole conference, said in an interview the Fed is too complacent about the prospect that Treasury market liquidity will vanish in times of stress, as it did with the onset of Covid in March 2020.

Keep reading...Show less