Increasingly, The Market Believes The ‘State Of Exception’ Has Become Permanent
I don't know if "wishful thinking" is the right term given that implicit in the notion that DM central banks will never be able to truly "normalize" is the idea that, at best, the "state of exception" ushered in following the crisis can never truly be lifted and, at worst, that the greatest experiment in the history of monetary policy has failed when it comes to creating a sustainable recovery, but if you think about things from the perspective of risk assets, "wishful thinking" probably works w
Bravo, Somebody somebody finally said what has become increasingly apparent over the last 5+ years. If one never starts to truly normalize one never finishes the process,,The intent has to be present to begin with..
They will never finish the process because they have the illusion of control, some event will swing the pendulum the wrong way at the wrong time…..
The Fed no longer sets policy, the Fed does what the financial markets require them to do. How that plays out I just don’t know. My best guess is ever increasing economic and political turmoil resulting in another world war.
I still can’t help but think BoJ asset purchases are and have always been, ultimately, about nationalizing Japan’s economy entirely. In that case, why would the BoJ sell ANY assets except those that no longer serve Japan’s interests? An in those cases, of course nobody else would want them.
In that light, for the Fed to stop maintaining or increasing its balance sheet could be interpreted as seeing less to gain from buying bank reserves and, with that, take the safety and value of all other assets below that of bank reserve components down a notch (or two, or more)…hence, the market’s concern for future positive sentiment given 2018 and all.
Now for the Fed to lend its balance sheet assets to others rather than sell them off, that seems much more interesting (e.g., fashioning and expanding macroprudential tools to allow Fed assets to be lent to, say, China to afford more US oil…).
QE was far from a smooth process, it took quite some time. It is unrealistic to expect that QT will be quicker and take less time. As was the case in QE its speed will be determined by trial and error. One or more speed bumps will not necessarily derail the process.