Economics
Fed Balance-Sheet Fracas Highlights Confusion Over Market Impact
- Decline in reserves is starting to distort funding rates
- But link to equity-market moves is less clear, strategists say
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Wall Street has become obsessed with the Federal Reserve’s balance-sheet runoff, as investors debate why it’s suddenly roiling markets more than a year after it began.
There’s been no shortage of industry veterans sounding the balance-sheet alarm in recent weeks. DoubleLine Capital Chief Executive Officer Jeffrey Gundlach says the unwind, interest-rate policy and guidance on where the two are headed have resulted in the equivalent of 15 implied tightenings. Billionaire Stanley Druckenmiller has called it a “double-barreled blitz” that could lead to a major policy error. And Guggenheim Partners Chief Investment Officer Scott Minerd has expressed concerns that liquidity constraints could give way to systemic risk.