Powell Haunted by Repo Crisis as Fed Aims to Cut Balance Sheet
- Powell told Congress he aims to avert QT issues seen last time
- Quantitative tightening in 2019 caused a shortfall in reserves
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Tucked away in hours of congressional testimony by Federal Reserve Chair Jerome Powell last month was an admission that the central bank was blindsided by the impact of shrinking its balance sheet four years ago.
While Powell assured lawmakers the Fed is committed to avoiding a repeat of 2019 — when the repo market, a key part of US financial plumbing, seized up — Wall Street economists and strategists caution that quantitative tightening remains complex and hard to predict. Known as QT, it involves letting Fed bond holdings mature without replacement, draining cash from the financial system.