RE: The Fed’s double-tightening
This refers to its first-ever effort to both raise interest rates and shrink the size of its balance sheet. As a reminder, when the Fed creates money to buy government bonds using funds it simply generates from its computers, this expands its balance sheet. As noted several times earlier, this is what is known popularly as quantitative easing even though the Fed prefers the term “large scale asset purchases”. Either way, these are effectively interest rate reductions, typically done once the fed funds rate has been lowered close to zero. Reversing this process, by selling off its bond holdings, or merely allowing them to mature without reinvesting the proceeds, represents de facto rate increases. Therefore, hiking rates at the same time it is allowing its balance sheet to shrink is truly a double-tightening event.