Please join Doug Noland and David McAlvany Thursday, October 17th, at 4:00PM Eastern/ 2:00pm Mountain time for the Tactical Short Q3 recap conference call, “Managing Short-Side ‘Beta’ in an Extraordinary Environment.” Click here to register.
Another quiet week… When the Fed on Friday announced its “Not QE” balance sheet reflation strategy, the Dow was already 400 points higher on anticipation of a positive trade negotiation outcome. The Federal Reserve will Tuesday begin buying $60 billion of Treasury bills monthly through 2020’s second quarter. This follows a five-week period where Federal Reserve Credit surged $187 billion. In addition, the Fed said it will continue with its overnight and term “repo” market interventions, along with reinvesting proceeds from maturing longer-dated maturities.
I have speculated the Fed’s balance sheet might inflate to $10 TN over the course of the next crisis and down-cycle. It’s possible that we could see expansion approaching $500 billion over the next six to nine months.
Announcing its “Not QE” plan as markets were in the throes of an intense short squeeze creates poor optics. Most analysts had expected the rollout to come at the Fed’s end-of-month meeting – or even during November. This is one more example of the Fed acting as if it is facing a serious risk to financial stability.
October 11 – Bloomberg (Rich Miller and Christopher Condon): “…The central bank… stressed that ‘these actions are purely technical measures to support the effective implementation’ of interest-rate policy and ‘do not represent a change’ in its monetary stance. ‘In particular, purchases of Treasury bills likely will have little if any impact on the level of longer-term interest rates and broader financial conditions.’” (more…)