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Fed Delivers Largest Rate Hike In Two Decades, Unveils QT
As expected, the Fed delivered the biggest rate hike in more than two decades on Wednesday.
The 50b
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Lovely bounce on the news. Yay!
Hiked 50 bp, QT as expected, 75 bp off the table. “Buy the news” pop. Hard to think it changes market trajectory medium-term.
H-Man, so how many hikes at 50 bps?
So there will be no overall liquidity tightening from QT until the reverse repo facility (currently $1.8T) returns to its normal level (just north of zero).
There is no net reduction in liquidity from QT (tightening) because it is simultaneously offset by an equivalent reduction in the reverse repo facility ($1.8T). Basically, the banks buy UST’s instead of borrow UST’s.
At $65B/month- it will take more than 2 years before the stock market experiences any (downward) impact from removing liquidity via QT. However, once the reverse repo is back to its long term normal level, which is zero – then, if QT keeps going- the stock market will likely experience downward pressure from the removal of liquidity.