Why The Fed Shouldn’t Cut Rates Until Quantitative Tightening Ends

via forbes:

 

• Last week the Federal Reserve drained another $7 billion from the banking system.
• The Federal Reserve should not be executing monetary policy with an eye on the stock market.

Most on Wall Street expect the Federal Reserve to cut the federal funds rate by 25 or 50 basis points on July 31. I say this is a dumb move as the FOMC continues “quantitative tightening.”

I say wait until the fourth quarter after QT ends. The Fed will drain $105 billion from the banking system in the third quarter.

Last week the Federal Reserve drained another $7 billion from the banking system. The balance sheet totaled $3.81 trillion on July 17, down $692 billion since the end of September 2017.

Fed Chairman Jerome Powell has a goal to shrink the balance sheet to $3.5 trillion. When quantitative tightening ends at the end of September, he will likely be $200 billion shy of his goal.