Broken Record – Stay Cautious – QT Has Just Begun

The Fed began to taper $10 billion per month in Treasury purchases in November 2021. This doubled in December as it became clear that inflation was spiraling faster and further than the Fed had predicted.

However, please note that tapering was still QE (Quantitative Easing) and still feeding inflation even when it had become obvious that inflation was too hot. The Federal Reserve did not stop QE until April 13, 2022, when the balance sheet peaked at $8.965 Trillion, up 10X versus 2008.

One should also note that before the 2008 Financial Crisis, FFR generally ran above Core CPI. It was only during the past 14 years while the Fed was conducting the biggest monetary experiment in the history of the US economy, namely QE, that FFR was consistently below core CPI.

Higher interest rates on government debt will add to the already huge permanent Federal Deficit. As shown above the Federal government running a $1.38 trillion deficit in Fiscal 2022 ending in September. These massive obligations are pushing us toward the territory of the debt which is now over $30 Trillion becoming unserviceable without consistent Federal Reserve intervention to drive down rates and buying, in other words QE.

In our opinion, QE will be restarted at some point as the deficit and debt spiral out of control. Inflation reduction will be pushed aside as an achievable goal. QT(Quantitative Tightening) will likely continue until something breaks; what that something remains to be seen. Stocks are unlikely to bottom until QT is dead.

https://1254107296.vod2.myqcloud.com/73ba5544vodgzp1254107296/1273e9c0387702307751973778/RGFGbsI16BsA.mp4

https://buildingbenjamins.com/market-and-economy/video-broken-record-stay-cautious-qt-quantitative-tightening-has-just-begun/