- In today’s FOMC preview we do not want to spend too much time on the meeting itself. We think it will be a straightforward affair (as we will summarize below). This Comment will be devoted to Quantitative Tightening (QT), which we will explain using simplified balance sheets. By demystifying QT, we hope everyone understands what QT actually entails, and what the Fed may or may not achieve with QT. But before we start previewing the meeting and delve into QT, we want to show to show the Fed’s inflation problem in two charts.
- The first chart is simply US real GDP on an index scale. We still set the outbreak of the 2007 recession as the base year. After all, it is still the last normal recession that was caused by Fed over-tightening. Here’s the chart:
For the full report, click here