The end of QT is upon us, said Jay Powell

The most noteworthy commentary from Jay Powell’s speech in front of the NABE was on the Fed balance sheet where its Treasury holdings have been shrinking by just $5b per month while its holdings of MBS have been reduced by $35b (at least that is the plan though each month varies).

He said it’s about time to stop reducing its size which stands now at about $6.6 Trillion which is 58% bigger than where it stood at the beginning of 2020. For perspective, nominal GDP has risen by 39%. If the Fed’s balance sheet grew in line with the economy, it would need to shrink by about another $800b. But that is apparently not going to be the case. He also defended the use of QE but it’s clear they went too hog wild with it, especially with MBS purchases that gave us a 50% rise in home prices over 5 years.