Macro Insights Weekly - Fed and ECB's balance sheet headaches

20 November 2023


  • Despite steady QT, the balance sheets of ECB and Fed remain enormous (ECB: 50% of EU GDP, Fed: 30% of US GDP). More consolidation is in store, with uncertain implication for economies and markets.
  • QE has had its helpful and distortionary impact, same holds for ongoing QT.
  • Banks’ deep dependence on reserves could be undermined by QT.
  • Fiscal financing could be jeopardised.
  • Asset price volatility could rise.
  • QT needs to continue, but complications would arise next year as the economy slows.