In what is beginning to look more like a case of ‘The Fed plans, Reality conspires’, the policy of Quantitative Tightening(QT) is sixteen and a half months old and is a tale of two outcomes.  One, the results of the balance sheet assets disposed of and the other the impact on net system liquidity.  The accompanying chart gives a summary of how balances have changed since November 2008.

Here’s a little background without so many numbers and abbreviations.

The Fed began using Quantitative Easing(QE) in November 2008 to assure system liquidity after the financial meltdown occurring at the time.  Since then, QE #2, 3, and during Covid in March 2020, QE#4.  Unfortunately, the only attempt at reversing the program, or (QT) was just a ‘tapering’ in the Spring of 2010 that ended soon due to the market turbulence created.

In June 2022 the Fed began the first true QT program.  The goal was to orderly liquidate the $8.5t+ in securities four rounds of QE accumulated.  Roll offs up to $95b per month commenced.  Through October 11, 2023, that effort produced a $1.07t drop in the securities held.  Over the sixteen and a half months, that averages $64.8b per month.

Looking at the changes in several other Fed Balance Sheet account classes over the same period indicates that overall liquidity in the system is in fact down only $147.7b.  A drop in the two liability classes since the start of QT added $768.4b of liquidity into the system.  Likewise, the “Loans-Total’ class added $153.9b since June 2022.

The intent of QT is the removal of excess reserves pumped into the system since 2008 and thus remove inflationary pressures.  To the extent of $147.7b, they have.  It’s just nowhere near a solution to the $8.5t+ problem.  It’s roughly 828 months, or 69 years away right now.  The Fed implemented QT well, it’s just other, uncontrollable circumstances found a way to offset 86% of that work.