The Dividend Cafe The Fed Part No One is Talking About
Aug 22, 2025
Dive into the complexities of the Federal Reserve's balance sheet, focusing on quantitative easing and tightening. Explore the historical impact of these policies since the 2008 financial crisis. Discover how QE has shaped financial markets and compare the U.S. approach to Japan's. Speculation abounds on the implications of an upcoming speech by Fed Chairman Jerome Powell, with market expectations hanging in the balance. Gain insights into the Fed's strategy for stimulating credit growth while navigating current economic challenges.
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2018 Tightening Triggered A Reversal
- Bahnsen recalls early attempts at QT in 2017–2018 and the market backlash that forced a reversal in 2019.
- He notes Jerome Powell called off QT in 2019 after credit markets reacted badly.
COVID Pushed Balance Sheet Much Higher
- During COVID the Fed resumed massive QE, adding roughly $5 trillion between 2020 and 2022 without debate.
- This expansion blurred boundaries and made later unwinding more complex.
Recent QT Was Smoother Than 2018
- The Fed began aggressive rate hikes and QT in 2022–2023 and managed to reduce the balance sheet by about $2.5 trillion.
- Unlike 2018, credit markets coped without widespread stress during this unwind.