The minutes of the mid-December FOMC meeting did not dissuade us that the Fed will start to cut interest rates from this March onwards. Despite now projecting more interest rate cuts this year, Fed officials apparently still intend to continue with their balance sheet run-down, aka quantitative tightening. Our working assumption is that the Fed will begin to taper the pace of its balance sheet run down starting in the middle of this year, with QT stopping completely by year-end. But there is still a chance that if economic growth slows more than we expect, then the Fed could cease QT immediately.
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