In today’s POMO, the Fed bought $1.6 billion in coupons, to offset shrinkage of its MBS portfolio in the normal process of mortgage prepayments.
For once there is widespread skepticism. Not about the printing press, at least not yet, but for the first time serious questions are being asked about what the Fed can and does actually do.
Monetary policy can be implemented through outright purchases or sales of securities, which permanently changes the size of the Federal Reserve’s System Open Market Account (SOMA) portfolio.
Lest we forget, the Fed is still doing regular small POMO to replace MBS paydowns. But as we saw this week. It’s not enough.
In other words, the US central bank is already way behind the curve on two key fronts.
Risk happens fast, especially when markets run on hopium with extended valuations. Whether today’s news headlines suggestive that Democrats may be opening an impeachment inquiry into President Trump will be a trigger […]
The phrase. “It’s the economy, Stupid,” became famous in first Clinton campaign. And Wall Street has always wanted you to believe that indeed, it is the economy, Stupid.
But the game has changed radically in the past two weeks
The game has changed radically in the past two weeks, so it does not matter one iota what the economy is doing. It’s the debt,…
So the repo market has coniptions because it can’t fund the $1 trillion Government deficit anymore.
Because banks dont want to dump their Treasury postions all at the same time and crash the Treasury market.
So the Fed has to ride to the rescue and take on the burden of monetizing the deficit.
So QE4 starts now!
Nothing’s proven either way yet, but here’s why banks hold the key.