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Joseph Wang & Alex Etra: Trillion-Dollar Liquidity Drain Imminent
Forward Guidance
The Fed's Plan to Stop QT
If the Treasury issues debt and it ends up not being purchased by money market funds, but by investors who bank with commercial banks, if that happens, then you could see the reserves in the banking system drop really quickly. And that could scare the Fed because the Fed thinks that commercial banks need a certain amount of liquidity to function properly. I don't think they would stop QT either because that's part of their monetary policy and autopilot,. inflation at 5% is stopping QT, really, really bad signal. The RFP is there to control interest rates to provide a floor. They don't want to mess with it.
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