Part 6/11:
There are striking parallels between today’s conditions and those leading up to the 2019 repo crisis. Back then, aggressive QT and risk aversion prompted the Fed to halt its balance sheet reduction prematurely. The yield curve inversion and rising market volatility intensified fears of a coming recession, prompting similar market jitters now.
Federal Reserve Chair Jerome Powell acknowledged that recent market pressures have accelerated the timetable to end QT. This echoes past experiences where the Fed’s policy normalization coincided with financial instability, forcing it to backtrack.