Everybody thinks the Fed is monetizing and no doubt that is the Fed’s absolute aim. Whether they will be successful or not in achieving reflation is a whole ‘nudder question. It is a complex one, and there is no simple answer, but for those who think future inflation is a done deal, it’s not. Tha’ts because it is entirely plausible, maybe even probable, that the Fed will not succeed for reasons that I discuss in a Radio Free Wall Street podcast to be posted tonight, and yesterday’s Fed Report.
I will be out of the office for most of the afternoon and evening due to “pre-holiday family commitments”. There will be no full Professional Edition Fed Report update today. However, you should note that the Fed allowed the $25 billion in RRPs that it had been rolling since mid October to expire today. That’s a $25 billion pump job that puts an exclamation point on yesterday’s Fedwords. It is the first significant open market operation in many weeks. Still, it does not guarantee a successful reflation. We’ll need to see the entire balance sheet for the next 2-4 weeks and the market’s reaction before we make any judgments about this issue. As I discussed in yesterday’s report for subscribers, there will be some elements of the balance sheet likely to undergo significant contraction in the weeks ahead. The Fed will have to pedal twice as fast just to overcome that.
The $53 billion in Trashury paydowns this week are a very big deal. I’d say that’s the single biggest factor in today’s Treasury market action. But they are strictly a one shot deal. Caveat emptor.
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