Insights
Macro Insights Weekly - Fed and ECB's balance sheet headaches
20 November 2023
- Despite steady QT, the balance sheets of ECB and Fed remain enormous (ECB: 50% of EU GDP, Fed: 30% of US GDP). More consolidation is in store, with uncertain implication for economies and markets.
- QE has had its helpful and distortionary impact, same holds for ongoing QT.
- Banks’ deep dependence on reserves could be undermined by QT.
- Fiscal financing could be jeopardised.
- Asset price volatility could rise.
- QT needs to continue, but complications would arise next year as the economy slows.
