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A Fed shift away from quantitative tightening could be the next bull factor for stocks in 2023, according to Bank of America.
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The Fed has started to reduce its near $9 trillion balance sheet at a clip of about $95 billion per month.
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But central banks are “petrified of market consequences of liquidity withdrawal,” BofA said.
A new bull factor for the stock market could emerge in 2023 after the Federal Reserve shocked markets with aggressive interest rate hikes earlier this year, according to a Friday note from Bank of America.
While most investors pay attention to the Fed’s ongoing rate hikes, behind the scenes the central bank is reducing its near $9 trillion balance sheet via $95 billion per month roll-offs of its treasury and mortgage debt.
But that move, combined with quickly rising interest rates, is sucking liquidity out of the global market and could spark a shift in the Fed’s policy heading into next year, according to the note.
h/t mark000