TY - GEN AB - We study the effects of the Federal Reserve's two Quantitative Tightening (QT) programmes implemented over the last decade. We use a high frequency identification strategy to distinguish between conventional monetary policy shocks, Treasury borrowing announcement shocks and the unwinding of the balance sheet. Further, we analyse both QT announcements and operations. Our results show that the Fed was successful in muting the signalling effect of its Balance Sheet Policy (BSP) announcements, as statements not containing quantitative information about QT did not impact significantly asset prices. Conversely, communications disclosing information over the size and the pace of QT had an effect on financial markets. We also find that QT operations have a significant and persistent deflationary effect on interest rates and asset prices. A 1-trillion USD reduction in securities holdings by the Fed is associated with an increase in 10-year Treasury yields by 2 percentage points. While the contractionary effects of QT have so far been at least partially offset by liquidity operations that have expanded the supply of reserves, our results suggest that balance sheet reductions entail in principle strong negative effects on financial markets. Although QT does not represent in the policymakers' view the primary tool to achieve price stability, it is yet far from running quietly in the background of the monetary policy stance. AU - Casalena, Francesco CY - Geneva DA - 2024 DA - 2024 DO - 10.71609/iheid-9wpf-4h08 DO - doi ID - 319233 KW - Finance and Investment L1 - https://repository.graduateinstitute.ch/record/319233/files/HEIDWP14-2024.pdf L2 - https://repository.graduateinstitute.ch/record/319233/files/HEIDWP14-2024.pdf L4 - https://repository.graduateinstitute.ch/record/319233/files/HEIDWP14-2024.pdf LK - https://repository.graduateinstitute.ch/record/319233/files/HEIDWP14-2024.pdf N2 - We study the effects of the Federal Reserve's two Quantitative Tightening (QT) programmes implemented over the last decade. We use a high frequency identification strategy to distinguish between conventional monetary policy shocks, Treasury borrowing announcement shocks and the unwinding of the balance sheet. Further, we analyse both QT announcements and operations. Our results show that the Fed was successful in muting the signalling effect of its Balance Sheet Policy (BSP) announcements, as statements not containing quantitative information about QT did not impact significantly asset prices. Conversely, communications disclosing information over the size and the pace of QT had an effect on financial markets. We also find that QT operations have a significant and persistent deflationary effect on interest rates and asset prices. A 1-trillion USD reduction in securities holdings by the Fed is associated with an increase in 10-year Treasury yields by 2 percentage points. While the contractionary effects of QT have so far been at least partially offset by liquidity operations that have expanded the supply of reserves, our results suggest that balance sheet reductions entail in principle strong negative effects on financial markets. Although QT does not represent in the policymakers' view the primary tool to achieve price stability, it is yet far from running quietly in the background of the monetary policy stance. PB - Graduate Institute of International and Development Studies, International Economics Department PP - Geneva PY - 2024 PY - 2024 T1 - Back to normal? Assessing the effects of the Federal Reserve's Quantitative Tightening TI - Back to normal? Assessing the effects of the Federal Reserve's Quantitative Tightening UR - https://repository.graduateinstitute.ch/record/319233/files/HEIDWP14-2024.pdf Y1 - 2024 ER -