Macroeconomic Analysis - The Federal Reserve's Quantitative Tightening (QT) is distinct from Quantitative Easing (QE), with QT involving the reduction of liquidity by allowing bonds to mature without reinvestment, while QE involves expanding the balance sheet through asset purchases [1] - QT is scheduled to officially end on December 1, 2025, and the Fed continues to reduce liquidity until then [1] - Historically, the Fed initiates QE following a liquidity crisis, a pattern observed in 2008, the 2019 repo crisis, and the 2020 Covid crash [1] Liquidity and Repo Market Dynamics - A $50 billion liquidity operation through the Fed's Standing Repo Facility (SRF) is a short-term overnight loan, not a permanent injection of cash or money printing [2] - The SRF allows banks to borrow cash directly from the Fed, up to $500 billion per day, serving as a backstop introduced after the 2019 repo market collapse [3] - SRF usage of $50 billion in a single day signals market stress, as normal usage is around $0-5 billion per day, indicating that liquidity in the private repo market has dried up [4] - The reverse repo pool has been drained from approximately $2.2 trillion to about $14 billion, suggesting a lack of excess liquidity [4] Historical Context and Future Outlook - The Federal Reserve first conducted QT in 2017, which ended in the 2019 repo market collapse, followed by the COVID crash, and the current situation mirrors this setup [6] - The previous QT ran from October 2017 to September 2019, with a massive QE program launched six months later in March 2020 after the COVID market collapse [6] - The system is showing signs of cracking again, with liquidity drying up, suggesting that the real crisis has not yet started [7]
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Doctor Profit π¨πΒ·2025-11-02 17:03