The Federal Reserve’s $2.5trn question

Can a central bank make $2.5trn of cash vanish without anyone much noticing? That is the improbable, even audacious, mission the Federal Reserve has begun, trying to shrink its vast balance-sheet while minimising disturbances to the economy. The process—known as “quantitative tightening” (qt)—got under way in mid-2022. The Fed has already shed nearly $500bn in assets, a good first step. But recent ripples in the banking system hint at turbulence ahead. Some analysts and investors think these strains will ultimately force the Fed to call off qt well ahead of schedule. Others suspect that the central bank still has time, and tools, on its side.