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Fed “QT” could include outright asset sales this time

As hinted at in the December FOMC minutes, we expect the Fed will begin shrinking its balance sheet later in 2022. They would start by allowing maturing assets to run off, but if longer-term bond yields were to remain unusually low, we expect officials would go further and begin actively selling some holdings particularly at the long end, in what would amount to a reverse “Operation Twist”.

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