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In September, the Federal Reserve is set to remove even more liquidity from markets by taking its Quantitative Tightening (QT) program to the next level. Joseph Wang, former senior trader for the Federal Reserve, and veteran banker Chris Whalen, join Jack to explain how this additional wave of monetary tightening will send shockwaves through markets, particularly the two assets that comprise the Fed’s balance sheet: U.S. Treasuries and agency Mortgage-Backed Securities (MBS).

Joseph argues that the U.S. Treasury will likely enact a “buyback” program of its longer-duration securities in order to dampen QT’s volatility, and Whalen contends that if the Federal Reserve sells Mortgage-Backed Securities (as opposed to merely letting them mature), armageddon will ensue.

Filmed on August 17, 2022.

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Read Joseph Wang’s latest piece, “The Marginal Buyer”: https://fedguy.com/the-marginal-buyer/

Follow Chris Whalen on Twitter https://twitter.com/rcwhalen

Follow Joseph Wang on Twitter https://twitter.com/FedGuy12

Follow Jack Farley on Twitter https://twitter.com/JackFarley96

Follow Forward Guidance on Twitter https://twitter.com/ForwardGuidance

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Joseph Wang’s work can be found here: https://fedguy.com/

Chris Whalen’s work can be found here: rcwhalen.com

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(00:00) Introduction

(01:32) The Effect of Quantitative Tightening (QT) On Commercial Banks

(21:00) Vulnerabilities in The Treasury Market

(25:15) The Conundrum in Mortgage-Backed Securities (MBS)

(32:30) The Fed's Banking "Stress Test"

(43:43) Swelling Reverse Repo Facility

(48:22) The Fed's Giant Mortgage Problem

(59:53) How Far Will The Fed Go In Hiking Rates?

(1:02:03) Why Is The Fed's Balance Sheet Not Going Down During QT?

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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.