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MNI INTERVIEW: Thin Liquidity Complicates Fed Plans To Tighten

(MNI) WASHINGTON

Rapid-fire Fed tightening is exacerbating liquidity problems in the world's largest bond market.

Deteriorating liquidity in the USD24 trillion U.S. Treasury market presents a major risk to global financial stability that could force the Federal Reserve to end quantitative tightening before 2024 and complicate its efforts to tamp down inflation, Priya Misra, a member of the Fed’s Treasury Market Practices Group, told MNI.

The Fed is not only raising interest rates at one of the fastest clips in its history, it is also shrinking its balance sheet, which peaked at almost USD9 trillion in April and has since declined to USD8.6 trillion.

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Deteriorating liquidity in the USD24 trillion U.S. Treasury market presents a major risk to global financial stability that could force the Federal Reserve to end quantitative tightening before 2024 and complicate its efforts to tamp down inflation, Priya Misra, a member of the Fed’s Treasury Market Practices Group, told MNI.

The Fed is not only raising interest rates at one of the fastest clips in its history, it is also shrinking its balance sheet, which peaked at almost USD9 trillion in April and has since declined to USD8.6 trillion.

Keep reading...Show less