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#985 - What's Coming for Markets in March? with Andy Constan
Real Vision: Finance & Investing
Monetary Policy: Understanding Reverse Repo Markets and Quantitative Tightening
The government provided a huge stimulus in 2020 and early 2021, leading to excess savings in the financial system. These savings are mostly in banks and money market funds. The Federal Reserve created a wholesale bank to take money market mutual fund cash and pay interest on it. Quantitative tightening started in May 2022, where the government issues bonds to withdraw excess liquidity from the financial system. This has led to a significant reduction in assets held by the Fed, from around $9 trillion to $7.5 trillion. Despite quantitative tightening, the banking system still has more reserves than before. The Fed plans to continue quantitative tightening for an extended period to manage excess liquidity in the financial system.
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