Fed Balance Sheet: Why Are Central Banks So Terrified Of Quantitative Tightening?

It has to be derivative positions held by so-called capitalists [the old-boy privatize the profits, socialize the losses crowd]. Witness the Bank of England's first impulse when confronted with trouble in the gilt market: not just halting QT but reversing 180 degrees to buying bonds.

Ditto the U.S. Federal Reserve: like a magician's misdirection, they attempt to focus the public on their interest rate moves and wave their hands when asked about the Treasury and MBS portfolios.

Here are the latest numbers from the H.4.1 report dated September 29, 2022 for the week ended September 28. Keeping in mind that the Fed's new reduction targets, starting September 1, are $60 billion per month (~$2 billion per day) for treasuries and $35 billion per month (~$1.1 billion per day) for mortgage-backed securities:

1. Factors Affecting Reserve Balances of Depository Institutions

Millions of dollars

Reserve Bank credit, related items, and reserve balances of depository institutions at Federal Reserve Banks	Averages of daily figures			Wednesday Sep 28, 2022
	Week ended Sep 28, 2022	Change from week ended
		Sep 21, 2022	Sep 29, 2021
Reserve Bank credit	8,772,923	-   10,846	+  347,605	8,760,439
Securities held outright1	8,382,845	-   10,258	+  442,463	8,372,353
U.S. Treasury securities	5,672,767	-    2,091	+  253,718	5,671,848
Bills2	313,648	-    2,078	-   12,396	312,734
Notes and bonds, nominal2	4,883,288	0	+  217,067	4,883,288
Notes and bonds, inflation-indexed2	375,761	0	+   13,007	375,761
Inflation compensation3	100,070	-       13	+   36,040	100,065
Federal agency debt securities2	2,347	0	0	2,347
Mortgage-backed securities4	2,707,731	-    8,167	+  188,746	2,698,158

....MUCH MORE

As we've said for three and a half months, because the Fed is not selling outright but rather allowing paper to roll off as it matures the per day and even the per month figures are idealized, some weeks more, some weeks less but for the MBS paper this is only the second week in 17 that the decrease was anywhere near the target, with the cumulative shortfall at $75.2 billion.

As to the much more liquid treasury portfolio they have a cumulative shortfall since the much-heralded program began June 1 that I haven't bothered to calculate but which this report's $12 billion shortfall only exacerbates.

Here is the St. Louis Fed's graph of the total balance sheet including much smaller line items such as interest due the Fed and other receivables which: a) aren't part of QT and b) tend to average out over time but on a weekly basis can impact the total balance sheet reduction or increase. Again, the program started on June 1, not at the high point of the graph on April 13 (mouseover interactive):

As can be seen, the week's total reduction of -$21.235 billion is much larger than the reduction in the QT items (-$10,258 billion). If interested the reader can follow the "MUCH MORE" link to table 5 of the report for the details, quick and dirty the excess was in the value of treasuries, mortgages are carried at face.