The Perils of the Fed's Vast Bond Holdings

The Federal Reserve is quietly undergoing a significant transformation of the financial economy through a process called quantitative tightening (QT). This involves reducing its large holdings of Treasury bonds and mortgage-backed securities. Despite its potential impact, this major shift is receiving little public attention, overshadowed by more headline-grabbing decisions on short-term interest rates, which were recently held steady at around 5.33% to combat inflation.