Federal Reserve Chairman Jerome Powell says the Fed Will Increase Supply of Bank Reserves, but supposedly it’s not QE.
The Federal Reserve will soon increase its purchases of short-term Treasury securities to avoid a recurrence of the unexpected strains experienced in money markets last month, Fed Chairman Jerome Powell said Tuesday.
Stresses in very-short-term funding markets last month suggested banks have grown reluctant to lend those reserves. Officials hadn’t said until Tuesday when they would allow reserves to grow again to avoid further scarcity issues from roiling funding markets.
“That time is now upon us,” Mr. Powell said in a speech to the National Association for Business Economics in Denver.
Mr. Powell emphasized that the coming moves are aimed at maintaining a firm grip on very-short-term lending rates—and not to provide economic stimulus, as the Fed did between 2008 and 2014 by purchasing longer-dated Treasury and mortgage securities in successive campaigns sometimes referred to as quantitative easing, or QE.
“This is not QE,” Mr. Powell said. “In no sense is this QE.”
Rather than purchase longer-dated securities, Mr. Powell said officials are now contemplating buying shorter-dated Treasury bills. Officials believe holding long-term securities boosts the economy and financial markets by lowering long-term rates and driving investors into stocks and bonds. They think a portfolio weighted toward shorter-term securities provides less or no stimulus.
Data Dependent
In a speech today, Jerome Powell described the Fed’s Data-Dependent Monetary Policy in an Evolving Economy.
What Powell did not say was what data the Fed was watching. I can help.
What the Fed is Monitoring
- Repo market
- Stock market
- Total Nonsense Including the Phillip’s Curve
Those are in order of importance.
However, I caution that until the Repo market blew up, it was not even on the list.
The stock market was the top dog, superseded by the need to get a grip on interest rates.
Questioning Not QE
It seems we have a bit of a disagreement as to what getting a firm grip on interest rates really entails.
Mike “Mish” Shedlock
One more reason we should all invest in what Robert Kiyosaki calls the 4 precious metals – gold, silver, guns, and bullets!
I’m beginning to wonder if the Fed has inadvertently nationalized a sizable chunk of the private banking LOC business since Lehman. It’ll be interesting to hear Powell’s critique of the primary dealer’s view of what happened to liquidity…and why.
The central banks by their nature disrupt the market, i.e. market based setting of interest rates. This has become glaringly obvious past 2009 when they took over the last functioning aspects. At this point, what difference does it make if they replace the function of inter-bank lending.
It makes a huge difference if they nationalize any industry (or part of an industry).
Nationalizing mortgage lending (lets stop pretending FNMA/FHLMC are anything but state owned enterprises or SOEs as the press calls them in China) has put the tax payer on the hook for billions in bad debt. SOEs are just places for corrupt politicians to bury massive losses — true in China, true in the USA.
Now the morons at the Fed, fresh off being forced to admit Bernanke’s debt monetization was anything but “temporary”, are talking about nationalizing the Treasury repo market.
While it will appear to be a “miracle” in the short run, and the most poorly run banks will be “saved” (from themselves), the medium term outcome will be a further reduction in the money multiplier for Treasury debt.
Fiscal stimulus is already not very effective. Monetary stimulus is already not effective at all (it props up zombie banks at great cost, but it does NOT stimulate lending anymore).
The mystery is how Bernanke isn’t villified for all the damage he caused.
“The mystery is how Bernanke isn’t villified for all the damage he caused.”
The blessings of publicly funded, universal indoctrination……
and also the fact that anyone who is employed as an economist in this country is either directly or indirectly paid by the Federal Reserve.
The Fed, like like all progressive inventions and institutions, speak no other language than Newspeak. The goal is to transfer wealth to idle, connected leeches. In order to “alleviate their funding concerns,” or whatever the fashionable euphemism for handing wealth created by others to useless leeches, happens to be today. Wealth stolen from whomever may still be naive enough to bother producing any. That is all there is. The sole and only goal and concern of the Fed. And that is not an exaggeration.
“The sole and only goal and concern of the Fed.”
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In the interest of full disclosure any Federal Reserve statement needs to be accompanied (or a scroll bottom of tv) by “Wholly owned by Big Banks … aka Wall Street”
And a preface should be appended to the Federal Reserve Act which reads “Big Banks get to bail themselves out in return for allowing the government to spend as much as it wants.”
“Big Banks get to bail themselves out in return for allowing the government to spend as much as it wants.”
… because voters like the sound of free stuff.
As I’ve said before, the whole game comes down to US voters being morally irresponsible and seeking the impossible: unearned wealth; and too intellectually irresponsible to identify the necessary result: the tightening of the debt noose around their own necks.
I don’t remember getting to vote for a Federal Reserve member.
I would almost buy this BS if they started selling off their long maturity stuff while they are buying short maturity stuff. Something tells me they wont.
What’s scarier is that they’re repeating the same actions and no longer attributing the possibility that there could a positive outcome to it. They are no longer delusional that they are in control of the ship. They are hoping.
The Fed is monetizing US Government debt.
Regardless of what part of the curve they are affecting, regardless of whether their goal is to “stimulate economic activity and support asset prices” (QE) or to “control short-term interest rates only” (not QE), what they are actually doing is permanently conjuring new credit. This new money will never be extinguished in any meaningful way as long as the US Government keeps expanding its debt and cannot withstand higher interest rates, which is pretty much guaranteed unless the US Congress is suddenly replaced with a bunch of people who believe long term fiscal responsibility is more important than continually boosting GDP numbers through government spending. (I am not holding my breath.)
The Fed is much too narrowly focused on its massaged two percent inflation metric. To survive under current policy rationalized by that metric, average people must spend less freely and save more aggressively than they used to (due to the erosion of dollar purchasing power and almost no interest being paid on saved capital). I observe that it is more difficult for people to earn enough to pay their bills and save than it used to be, and that is substantially the Fed’s fault. Meanwhile, the US Government spends like record deficits do not matter. In effect, the combined power of unlimited deficit spending coupled with the Fed’s printing press have allowed the US Government to bribe its way into being the government that it is today. Is this what happened to Rome? One wonders.
“The Federal Reserve will soon increase its purchases of short-term Treasury securities to avoid a recurrence of the unexpected strains experienced in money markets last month,”
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Sure, sure. NOTHING to do with trying to get rid of inversions (without resorting to rate cuts). Will be funny when inversions persist and … worsen.
Garic Moran’s comment is spot on. Bernanke explicitly stated that QE was NOT monetization, because it would eventually be reversed. We now know that will never happen. All it took was shrinking the Fed balance sheet by 10% and the wheels were already coming off the bus. QE is MONETIZATION and there will be an awful lot more of it down the road.
“QE is MONETIZATION and there will be an awful lot more of it down the road.”
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True.
But count on ECB & China to do the Krazy better than Federal Reserve. Meaning? King Dollar not going anywhere anytime soon.
They know that they can only get away with, it so long as they are all doing it. And don’t forget the BOE – they will get to take a turn at bat, too.
Is the word “now” supposed to be there?
I think a lot of people knew the moment Bernanke started bragging about helicopter money that Bernanke was completely and totally full of sh!t.
In January 2019, when Powell u-turned with the stock market crashing, is when it became clear that the Fed balance sheet will never be normalized. They did try, and got all of 10% of the way there.
I think Bernanke was lying from the start.
Or he is an even bigger idiot than anyone thought — that could be too
QE would be reversed if they didn’t replace the expiring treasuries, and MBSs. It would be a slow process, but the balance sheet would shrink.
How can you tell a Fed Chair is lying? Simple… their mouth is moving.
Now that the elderly have been sucked completely dry with near 0% for years wouldn’t be a bit surprising if rates went up.
Rates are never going to go up. They can’t. There’s a very clear channel going back to the 1980s after Volker’s spike. Since then it’s a clear line of lower lows and lower highs. The 0 line has proved a small barrier but that too will fall as it has internationally.
Higher rates would be a poison pill to the gargantuan oceans of debt out there. If you can’t roll your debt because of interest rates then you go belly up.
In Their Own Words: Behind Americans’ Views of ‘Socialism’ and ‘Capitalism’ https://www.people-press.org/2019/10/07/in-their-own-words-behind-americans-views-of-socialism-and-capitalism/
These 3 Policy Failures Are Killing the American Dream
https://nymag.com/intelligencer/2019/10/these-3-policy-failures-are-killing-the-american-dream.html
The Fed is the Ministry of Truth. Doublespeak means money printing/monetization is “QE,” “everything is fine, no recession in sight” means water is coming over the sides of the boat, 100 MPH winds and no land in sight
To fair to them, they don’t want to admit to you that the game is well and truly up. Plan accordingly.
Biblical levels of fresh money printing on tap,why?Economy is dead (maybe deader than dead)and DC is danger close to collapse,once those myriads of govt checks,handouts,subsidies,contracts stop…….whats next?……Martial law?On the bright side…AR’s are dirt cheap…ammo not so much!
It was over after TARP and TARP II. We don’t even have the same system anymore with so much on the central banks balance sheet.