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Fed Gets Real With the Boa Constrictor Approach to Tightening

This is a special report for all subscribers to Macro Liquidity, Federal Revenues and Treasury Pro Trader subscribers. 

Back on April 18, I wrote:

By late this year the Fed may have begun to implement its proposed policy of “normalizing” the balance sheet. That’s a nice way of saying “shrinking” the balance sheet. To do that the Fed is proposing to allow its Treasury holdings to mature and not be rolled over. It’s also proposing not replacing its MBS holdings as they are paid down.

By doing it slowly over several years, the Fed may be able to avoid crashing the market. I use the word “may” with reason. Any shrinkage of the Fed’s assets will increase the odds of an accident. Slow and steady tightening will act like the drip, drip, of a Chinese water torture. It will promulgate a bear market in stocks. Accidents do tend to happen in bear markets. The drip, drip, drip eventually drives the market into a panic.

Today the Fed announced that it will soon begin to tighten the noose.

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Treasury Pro Trader subscribers (or Professional Edition), click here to download complete report in pdf format.

Federal Revenues Pro Trader subscribers (or Professional Edition), click here to download complete report in pdf format.

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