Powell haunted by repo crisis as Fed aims to cut balance sheet


Tucked away in hours of congressional testimony from Federal Reserve Chairman Jerome Powell last month was an admission that the central bank was blindsided by the impact of the shrinking balance sheet four years ago.

While Powell assured lawmakers that the Fed is committed to avoiding a repeat of 2019 — when the repo market, a key part of America’s financial plumbing, the move – Wall Street economists and strategists warn that quantitative easing remains complex and difficult to predict. Known as QT, it involves letting the Fed’s bond holdings expire without replacement, draining money from the financial system.

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