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Morgan Stanley's latest viewpoint: Don't be fooled, the Fed stopping QT does not equal starting QE.
Key points:
- Fed will stop tapering on December 1st, but this is an adjustment of the asset structure, not a release of liquidity.
- Specific operations: Every month, 1.5 billion dollars of MBS mature and are replaced by an equivalent amount of short-term government bonds.
- The essence is "asset exchange", not "liquidity increase" - the size of the balance sheet remains unchanged.
- What truly influences the market is the debt issuance strategy of the U.S. Treasury, not the Fed.
- Morgan Stanley expects that in the coming year, the Fed will be forced to increase its purchases of government bonds only to meet the growing demand for cash in the economy.
Bottom line: Stopping the tapering does not equal to flooding the market. The market should not overinterpret. The key is to look at the supply of U.S. Treasuries, not the Fed.