Fed’s QE Is Over (Until It Comes Back.)

The Fed’s QE is officially over. As we noted in our recent Daily Market Commentary (subscribe for a pre-market email):

“The Fed will officially end the latest round of QE on Wednesday. The schedule below shows that on March 9th, the Fed will make its last QE purchase of about $4 billion of shorter-term Treasury notes. Since March 2020, the Fed’s balance sheet has risen by nearly $5 trillion due to QE. The Fed will still purchase bonds but only to offset maturing bonds and keep its balance sheet stable. Given the new monetary policy regime, we must focus beyond the Russian conflict. This entails better risk management as a key source of liquidity is now officially ending.”

Fed's QE table

Why is this important?

As we discussed in “Don’t Fight The Fed,” the Fed’s QE has been the primary driver of asset prices since the financial crisis.

The primary bullish argument for owning stocks over the last decade is that low-interest rates [the Fed’s QE programs] support high valuations.

However, if low rates and the Fed’s QE programs drive asset prices higher, then the reversal of those policies can NOT also be supportive.