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Balance sheet reduction begins
QT announcements (Oct 2017, Jun 2022) signal the Fed is withdrawing liquidity by letting bonds mature off its balance sheet. The 2017-19 QT ended with the repo market blowup in September 2019. The 2022+ QT is ongoing.
Editorial commentary written by ALAN analysts. Figures cited below are analyst-authored context — they are not derived from the chart above and may reflect different windows or sources.
The Fed adds liquidity aggressively (QE: $120B/month in 2020) but removes it cautiously (QT: $95B/month cap in 2022). The asymmetry means QT's market impact is more gradual.
The 2017-19 QT eventually caused the September 2019 repo rate spike, forcing the Fed to abruptly restart balance sheet expansion. QT's endpoint is determined by market stress, not a preset target.
The S&P 500 rose approximately 25% during the 2017-18 QT period and rallied through much of the 2022-24 QT period. QT is a headwind but not necessarily a dealbreaker for equities.
Quantitative tightening drains liquidity slowly until something snaps quickly — the 2019 repo blowup ended the last attempt — so review fragility rather than direction: consider trimming leverage or short-term borrowing that depends on smooth funding markets, while noting equities themselves have historically weathered QT better than feared.