Powell haunted by repo crisis as Fed aims to reduce balance sheet

Tucked away in hours of congressional testimony from Federal Reserve Chairman Jerome Powell last month was an admission that the central bank was blind to the impact of shrinking its balance sheet four years ago.

While Powell assured lawmakers that the Fed is committed to avoiding a repeat of 2019 — in which the repo market, a key part of America’s financial plumbing, seized – Wall Street economists and strategists warn that quantitative easing remains complex and difficult to predict. Known as QT, it involves letting Fed bond holdings mature without replacement, draining money from the financial system.