Fed will restart QE to stabilize Treasury market, Pozsar says

Bloomberg/Alex Harris/1-6-2023

“The Federal Reserve will be the backstop of the Treasury market this year to alleviate dysfunction resulting from its increasing size and the retreat of regular buyers. That’s the view of Credit Suisse Group AG analyst Zoltan Pozsar, who in a note to clients Friday, predicted the Fed will restart asset purchases during the summer of 2023.”

USAGOLD note: There is considerable logic in Pozsar’s view…… And keep in mind, if it did occur, it would not be the first-time that the Fed renounced QT and embraced QE in virtually the same breath, as shown in the chart below.

“When the creation of money sufficiently hurts the actual and prospective returns of cash and debt assets, it drives flows out of those assets and into inflation-hedge assets like gold, commodities, inflation-indexed bonds, and other currencies (including digital). This leads to a self-reinforcing decline in the value of money. At times when the central bank faces the choice between allowing real interest rates (i.e., the rate of interest minus the rate of inflation) to rise to the detriment of the economy (and the anger of most of the public) or preventing real interest rates from rising by printing money and buying those cash and debt assets, they will choose the second path. This reinforces the bad returns of holding cash and those debt assets.” – Ray Dalio (Bridgewater Associates), Where We Are in the Big Cycle of Money, Credit, Debt, and Economic Activity and the Changing Value of Money

Gold and the Fed Balance Sheet
(2016-2021)annotated line chart showing the history of qt reversal and reintroduce of qeChart courtesy of TradingView.com • • • Click to enlarge

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