On June 1st, the Fed started to deploy quantitative tightening (QT). Barron’s wrote on Wednesday: “For the next 3 months, the Fed will stop reinvesting the proceeds from its $9 trillion of bonds to reduce the balance sheet by $47.5 billion each month. After Labour Day, the Fed will step up the tightening process to a $95 billion per month rate of reduction.” According to people in the know, the Fed’s QT plan is equivalent to a single 25 bps increase in the policy rate. It does not sound like much, but it should intensify the ongoing monetary deflation cycle by potentially keeping the money supply at bay. There’s no doubt interest rates are going higher. The Fed is going to move very quickly, following the lead of the Bank of Canada. Last Wednesday, the Canadian central bank raised its own policy interest rate by 50 bps to 1.75% and said it was prepared to act even more forcefully if needed.
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By Hubert Marleau
By Hubert Marleau