"Quantitative Tightening" So Far
Banks' deposits at the Federal Reserve have dropped by about $1 trillion since the end of last year. The impact has been borne primarily by U.S.-based banks headquartered outside of New York.
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When did the Federal Reserve start
tightening normalizing monetary policy?
But the process arguably began earlier, around November or December 2021. After nearly a year in which they were locked into narrow trading ranges, real yields on Treasury Inflation-Protected Securities have surged, lifting up borrowing costs across the economy.
That was also around when stock markets peaked, and shortly before the start of the dollar’s most recent run-up against most other currencies.
So it’s worth noting that this was also when the quantity of reserves held by banks at the Fed peaked. Since the end of last year, this form of inside money has shrunk by about $1 trillion, or roughly 25%. That’s before the Fed started to let its balance sheet shrink.
How did this happen?