Everyone must be wondering: How high will interest rates go? When will the stock market bottom? What does the future hold? Unfortunately, it all depends on the Fed. They can either slow down, stop, or reverse the Quantitative Tightening (QT) process. Let’s see the options:
Slow Down:
So far, the Fed’s balance sheet reduction effort has been crawling, only reduced by around half of the nearly $50 billion cap per month in the first three months. Should they slow the pace further, they may have to address it formally. Nonetheless, slowing the pace of QT only offers faint hope of delaying the inevitable crisis ahead.
Stop:
If the Fed were to formally stop their QT program, in order to hold the balance sheet steady, they would be in a perpetual juggling game of buying just the right amount of securities to balance off the maturing ones.
Unfortunately, whether they slow or stop QT, it won’t matter. Whether the market crashes in October of this year or March in the next, the crisis is coming. Interest rates always try to revert to what they should be in a free and unhampered market. Absent the Fed actively increasing the money supply, interest rate suppression will always be a problem.
With US debt about to cross $31 trillion, there is no way the Fed would simply slow or stop QT, nor try to hold rates steady for a prolonged period of time. It wouldn’t even work for long before the market collapses and the Fed loses control of rates entirely anyway.
Reverse:
Inflationism will be monetary policy so long as there is a Federal Reserve. No matter what they tell you about inflation or unemployment, and the juggling acts they play, the balance sheet is always destined to increase, and with it, all prices. Only by exponentially increasing the balance sheet can the Fed continue its interest rate suppression. Plus, the stock, bond, and housing market have been broken (because of the Fed) so it won’t be long until the Fed rescues them once again.
Even the United Nations noticed, as Reuters reports:
…warned on Monday of the risk of a monetary policy-induced global recession that would have especially serious consequences for developing countries and called for a new strategy.
Quotes from their report says:
Excessive monetary tightening could usher in a period of stagnation and economic instability...
And:
Any belief that they (central banks) will be able to bring down prices by relying on higher interest rates without generating a recession is, the report suggests, an imprudent gamble…
Recessions matter: but stock portfolios and lower interest rates do too. It is only through asset purchases can the two be found again. When the time comes, they’ll tell us (price) inflation is low and therefore warrants balance sheet expansion. Or they’ll acknowledge inflation is high, but say it was a choice between the lesser of two evils, opting to increase the balance sheet to fight a recession at all costs.
