The long-anticipated unwinding of quantitative easing (QE) in the US is set to begin, just as the Fed’s leadership faces a wave of turnover. We think a strong foundation should keep steady US economic growth on track.


As the September meeting of the Federal Open Market Committee (FOMC) ended today, the committee announced the start of its balance-sheet reduction program. Over the next few years, the Fed’s massive holdings are expected to shrink by more than a trillion dollars (Display), and official interest rates will be nudged steadily upward.

The unwinding of QE is a major milestone on the central bank’s path toward normalizing monetary policy. For years, the Fed delivered extraordinary support to a US economy that was recovering from the global financial crisis of nearly a decade ago.

We don’t think balance-sheet reduction will be disruptive, despite the staggering amount of money being removed from the system. Why? The outlook for the US economy is brighter than it’s been in some time, which should allow the Fed to walk back policy accommodation without upsetting the applecart.


The pain and suffering Hurricanes Harvey and Irma caused will be lasting, and rebuilding will take time. But historically, the economic dislocations caused by natural disasters in affected regions have been brief. Within a few months, rebuilding activity has typically kicked in, returning economic growth to normal—or maybe even a little higher than normal.

So, despite the storms, we’re still confident the US economy will keep its momentum, because the foundations are sound. Consumption remains the main driver—household expenditures are nearly two-thirds of gross domestic product (GDP). A resilient labor market (Display) gives households plenty of income to fuel consumption. And confidence is near cyclical highs, so it seems likely that households will keep the money flowing for the next few quarters.

Business investment has started to rebound, and we expect a modest boost later this year and into 2018, as Texas and Florida invest in rebuilding from the storms. Other factors are also promising. The dollar has weakened by approximately 10% this year. A weaker dollar provides tailwinds for exporters and manufacturers—reflected in a surge in survey-based measures of manufacturing activity. Stock prices are up and bond yields are low, giving businesses and consumers access to low-cost financing to fund investment and consumption.