How fast could the Fed shrink its balance sheet?

By: Wajeeh Khan
Wajeeh Khan
Wajeeh is a News Reporter at Invezz covering the European, Asian and North America stock markets. Wajeeh has 5… read more.
on Apr 6, 2022
  • Peter Boockvar expects the Fed to shrink its balance sheet by up to $100 billion a month from May.
  • The Bleakley Advisory Group CIO says possibility of recession and a market sell-off remains on the cards.
  • Deutsche Bank forecasts U.S. equities to be down 20% by next summer.

The market has priced in another 225 basis points increase in the interest rates, says Bleakley Advisory Group CIO. The central bank is yet to pull on the other lever at its disposal though.

Boockvar’s remarks on CNBC’s ‘Squawk Box’  

The U.S. Federal Reserve has indicated it plans on shrinking its balance sheet rapidly. Explaining what “rapid” could mean on CNBC’s “Squawk Box”, Peter Boockvar said:

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They haven’t specified that yet, but I’m guessing $80 billion to $100 billion of balance sheet shrinkage per month will start in May. In comparison, when they shrunk their balance sheet in 2018, it topped out at about $50 billion a month.

According to Boockvar, the Fed might have to jump straight to $80 billion to $100 billion this time, versus a gradual increase to $50 billion in 2018.

Is the U.S. economy headed for a recession?

The aggressive response to inflation, as per Deutsche Bank, will push the economy into a recession in 2023. Agreeing with the bank’s outlook, Boockvar added:

Soft landing is a rare occasions. So, the odds are that we’ll go into recession and the market will sell-off. It’s even rarer this time because of such high inflation, and the rapidity of this rate move is so sharp and they’ll shrink balance sheet at the same time.

Deutsche Bank sees three consecutive hikes of 50 bps each and forecasts U.S. equities to be down 20% by next summer.

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