Investing.com -- The Federal Reserve’s recent decision to slow down its balance sheet reduction has sparked talk that it could be a form of “mini-QE” (Quantitative Easing).
However, according to analysts at Sevens Report, this move is not a “mini-QE” and should not be seen as a significant stimulus for the economy or a bullish signal for stocks.
The Fed’s action involves reducing the amount of Treasury bonds it allows to roll off its balance sheet rather than allowing them to mature without replacement.
"Instead of not replacing $25 billion of maturing Treasuries per month, it will now not replace $5 billion per month," Sevens Report explained.
They stated that this adds $20 billion per month in demand for Treasuries, but "this is not a market-moving event," the report clarified.
The move, while positive for bonds as it lowers yields slightly, does not represent a return to traditional QE, which occurs when the Fed purchases additional bonds, expanding its balance sheet, according to the firm.
They explained that, in this case, the Fed is still reducing its balance sheet, just at a slower pace. "It’s not QE because the Fed isn’t adding more bonds to its inventory," the analysts noted.
The decision to adjust its pace of Quantitative Tightening (QT) is seen as a response to “mild liquidity strains in money market funds” and concerns about the economy in light of tariff and policy uncertainties.
While the shift may slightly ease upward pressure on Treasury yields and ensure liquidity in overnight markets, “neither is going to help end this pullback,” Sevens Report concluded, highlighting that economic growth and policy decisions will remain the key factors for the stock market’s near-term fate.