We heard about the pace of QT potentially slowing by Fed Chairman Powell, yet a close look at the numbers tells an interesting story of a market currently full of liquidity. We have to first look at the total Fed balance sheet which includes Treasuries and mortgages. It is declining through QT, but the reverse repo program is also declining which is added back liquidity as investors buy Treasury bills which can be levered. Finally, the Treasury TGA must be subtracted from Fed assets. As the TGA account declines, this money will be injected into the banking system.
QT will be become more important once the RRP program falls to zero which will mean that liquidity will start to decline, yet currently there is no shortage. A liquidity issue will start to exist as we get closer to year-end.
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