Quantitative tightening has been going on for almost 2 years, but the effects of it have pretty much been offset by the drawdown in Overnight Reverse Repos, which had an insane balance of $2 trillion in recent years. It should reach its normal state of near zero sometime in early summer.

Once ON RRP balances are back at their normal level, and that drawdown is no longer offsetting QT, I think we’ll see the normal effects of QT that we’d expect, that haven’t been seen yet. The fed has been tightening for 2 years, but it hasn’t felt like it (likely due to the $2 tn in ON RRP & drawdown). We should see liquidity drawdowns in other normal lending and markets once that balance hits zero.

I also think that’s why the fed slowed the pace of QT so much. They know it’ll likely start hitting in liquidity in conventional terms by early summer.

Of course, this is all unprecedented fed action with monopoly dollar numbers of money, so nobody really knows how drawing down all this liquidity will work out. But it’ll almost certainly be with another business cycle recession since the last one was the GFC.