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Quantitative tightening could trigger a protracted tantrum

Investors do not know precisely what will happen when the Federal Reserve reduces its massive holdings of Treasuries and mortgage-backed securities. But they know they don’t like it.

In minutes from last month’s rate-setting meeting, released on Wednesday, Fed policymakers announced a plan to begin shrinking the central bank’s asset portfolio, a process known as quantitative tightening. , at their next meeting in May. Moreover, with high inflation and a tight labor market, the minutes also showed that policymakers are inclined to shrink the Fed’s $9 trillion balance sheet at a much faster pace than they have. did during the quantitative tightening cycle that started in October 2017, when inflation was much cooler and the unemployment rate was higher.


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