After flooding the market with liquidity for the better part of a decade, the US Federal Reserve has begun tightening the spigot. Over the next five years, its asset portfolio will shrink by as much as $1.9 trillion as a result of ‘balance sheet normalisation’, which started in October 2017.
This reduction in the Fed’s balance sheet assets must be matched on the liability side by a decline in reserve balances, which banks maintain for liquidity purposes. To put it another way, the Fed’s normali
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