Situation. Powell previewed the reduction of the balance sheet with passive runoff, using caps that phase in. But it is unclear if the FOMC will be able to shrink it in time. A downturn that necessitates zero funds rate and QE could hit before the three-year mark; the risk of that outcome grows with the […]
Category: Balance Sheet
1. Runoff. In keeping with greater upside risk to the glide path, we see greater risk of an earlier and more-rapid runoff. Our base case is still a July start with ~$100bn/mo caps. The hawkish case is an earlier start and caps maxing out at higher, like $120bn/mo. A reduction of more than $1tn, e.g. […]