Independent Strategy

QT vs QE – the nature of asymmetry

QT is the shrinking of central bank balance sheets. Balance sheets of the developed countries’ central banks have shrunk nearly 17% from their 2022 peak. But this is not reducing liquidity in any way that matters to financial markets. There are two reasons for this explored here: “The Fire Brigade syndrome”, which makes QE & QT asymmetrical and has nothing to do with economics and a lot to do with human behaviour. And the new operating frameworks being introduced by central banks, which enhance both control of monetary policy and liquidity risks but has implications for the size of their economic footprint.

This piece examines the linkage between Quantitative Easing (QE), Quantitative Tightening (QT) and the new operating systems being introduced by central banks. Surprisingly it reveals exciting stuff. Central banks will see their economic footprint vary according to which operating system they choose!

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