Primary Dealer Has a Big Call on Fed’s Balance Sheet
After the central bank’s latest guidance, TD Securities now sees the runoff ending by June.
Jerome Powell has bond traders re-examining what they thought they knew.
Photographer: Alex Wong/Getty Images
To TD Securities, the Federal Reserve’s sharp U-turn this week means bond traders should re-examine what they thought they knew about monetary policy under Chairman Jerome Powell, particularly when it comes to investors’ biggest obsession: the central bank’s balance sheet runoff.
In what appears to be one of the more aggressive calls on Wall Street, strategists at the bank now predict the Fed will end its balance-sheet reduction in June. They had previously thought it would last until October. That would leave the central bank’s holdings at about $3.8 trillion, down from as much as $4.5 trillion but still a ways away from the range of $1.5 trillion to $3 trillion that policy makers had estimated. This forecast is eye-catching, in part because TD Securities is one of the Fed’s 23 primary dealers.