I came across an interesting opinion piece on CoinDesk today titled “Will Bitcoin Win When the Fed Stops Buying Bonds?”
Beginning in November, the Fed will purchase $10 billion fewer Treasury bonds and $5 billion fewer mortgage-backed securities (MBS) each month until the $120 billion program is depleted sometime in mid-2022.
The Fed left itself some wiggle room to pause or accelerate this “taper” depending on extenuating circumstances. It also won’t consider raising interest rates while still buying bonds — more flexibility.
It cannot be overstated how experimental this monetary outlay is, especially as it begins to wind down. Known as “quantitative easing,” or QE, the bond buying program has more than doubled the Fed’s balance sheet (now valued above $8.6 trillion). It has had broad effects on the labor market, asset prices and the dollars in your pocket.
The article’s title grabbed my attention, and it’s actually a pretty interesting piece. It’s more nuanced than a lot of reporting on the Fed. But I continue to be mystified by the fact that people blindly believe that the Fed will follow through with monetary tightening.
If stocks crash 30%, do they really think the Fed will keep tightening? Everything we’ve seen in the past five years has shown us that the Fed will reverse course on a dime if the stock market falls.
I simply refuse to believe that this time the Fed is serious about tightening. Every time it has said that in the past, it’s backpedaled.
My view remains the same: The Fed will continue to ramp up money printing for the next five years or more and probably keep interest rates near zero. As I’ve said in the past, there will be periods where it will “try” to tighten and quickly reverse course. But I just don’t think it can normalize monetary policy for at least five to 10 years. There’s simply too much debt.