You may have heard about how the Federal Reserve is tightening financial conditions and embarking on an operation to contract its balance sheet and pursue "more normal" monetary policy.
Pardon our skepticism, but wake us up when they actually start executing QT and actually shrinking the balance sheet. Risk assets have anticipated tightening, and the Fed has jawboned tightening and actually has tightened conditions, but there are some missing links. They haven't actually shrank the balance sheet. So what's going on here?
As we discussed looking at the BOJ facing the edge of a cliff with JPY in free fall, the Central Banks as usual are manipulating you and markets. Watch what they actually do and not just what they jawbone. The Fed needs inflation for the soft default scenario. Expect some slick mathematics and jargon games and switcheroos as they pursue YCC and lowering the debt/GDP ratio (nominal of course!).
