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Quantitative tightening fears overplayed?

Tong Kooi Ong
Tong Kooi Ong2/4/2019 07:30 AM GMT+08  • 5 min read
Quantitative tightening fears overplayed?
SINGAPORE (Feb 4): Global stock markets have steadied in the first few weeks of trading in 2019, though many investors remain wary that the rebound may not last. The list of worries has been very well narrated and should be very familiar to all by now, on
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SINGAPORE (Feb 4): Global stock markets have steadied in the first few weeks of trading in 2019, though many investors remain wary that the rebound may not last. The list of worries has been very well narrated and should be very familiar to all by now, one of which is the US Federal Reserve’s quantitative tightening (QT) actions.

Recall that the Fed started QT in October 2017, by allowing a monthly fixed amount of Treasuries and mortgage-backed securities on its balance sheet to run off. The initial amount was US$10 billion a month, which subsequently was increased by US$10 billion every quarter.

Since October 2018, assets totalling up to US$50 billion monthly will mature without being reinvested. The Fed’s balance sheet peaked around US$4.5 trillion and has since been pared down to less than US$4.1 trillion ($5.5 trillion) at the start of 2019. It will further drop by up to US$600 billion this year assuming the US$50 billion monthly runoff rate, though Fed chairman Jerome Powell had recently signalled flexibility should the situation warrant it.

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