Is Quantitative Tightening Over?

A new narrative has emerged ahead of this week’s FOMC –the slowing of so-called “quantitative tightening.” Powell said it wasn’t discussed at the December meeting, but the minutes of the meeting showed it was. He will now likely have to say “we are talking about talking about it.” It doesn’t matter, because though central bank asset purchases in times of emergency are a form of easing, running off those assets when the emergency is over is not a form of tightening. But it is nevertheless important to sentiment. The stock market and other risk-on indicia suggest the December pivot in the face of “immaculate disinflation” is still believed, despite contradiction by Fed officials other than Powell, and despite market-implied probability of a March cut falling back to where it was before the pivot. Other than an outright recantation, there is little the FOMC can do to damage sentiment. Reaffirmation won’t be much of a surprise. We reiterate our call for the first rate cut to come in March.