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

via forbes:

 

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 Balance Sheet

Fed Balance Sheet

FEDERAL RESERVE

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.