Financial analyst Lyn Alden suggests that the Federal Reserve is transitioning away from strict Quantitative Tightening (QT) and entering a period of necessary, subtle monetary expansion, which she terms the ‘gradual print’ mode. This shift is driven primarily by structural constraints within the banking system and the necessity of managing massive government debt burdens.
Alden emphasizes that the key limiting factor for continued balance sheet reduction is the level of bank reserves. The Fed cannot allow reserves to fall below the minimum operational level required by the banking system without risking liquidity crises. During the early stages of QT, the runoff of the Overnight Reverse Repurchase Agreement (ON RRP) facility provided a temporary buffer, injecting liquidity back into the system and allowing the Fed to shrink its balance sheet without immediately impacting bank reserves.
However, the RRP facility is finite. As it nears depletion, the buffer vanishes, forcing the Fed to slow or halt its QT program to prevent reserves from dropping dangerously low. Alden’s analysis posits that, going forward, the Fed will have a structural requirement to expand its balance sheet gradually to meet the continuous demand for bank reserves and accommodate the financing needs associated with persistent fiscal deficits (fiscal dominance).
This ‘gradual print’ is distinct from emergency QE; it is a baseline monetary operation required to maintain the current debt-heavy financial structure. While subtle, Alden concludes that this steady expansion of the monetary base ensures that the long-term trajectory for inflation and the depreciation of currency purchasing power remains structurally upward.
Source: Federal Reserve entering ‘gradual print’ mode — Lyn Alden
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