Balance Sheet Shrunk Too Much in 2019?!
Please consider the above video interview.
Dudley: Fed will taper its balance sheet reduction the deeper we get in the process. The Fed will stop before we get to that critical point.
Lou Dobbs: Have you done an experiment that says this is going to work or are you flying blind?
Dudley: I think you did the experiment last time following the great financial crisis. The Fed shrunk its balance sheet and we had that experience in 2019 where they shrank it a little too much. The Fed will learn from that episode. If rates spiked up too much, banks would turn to to the Fed’s standing repo facility. This time the Fed has a belt and suspenders.
Belts and Suspenders
Not to worry, the Fed has belts and suspenders that it can increase at any time.
Importantly, the Fed conduct QE and QT simultaneously if need be.
What a Hoot!
First it’s an admission the Fed’s QE policy was experimental and flying blind.
Second, Dudley complains that tiny shrinkage was too much and the Fed will learn by not doing too much QT.
Third, Dudley is saying that QE will never be fully reversed. And if anything fails the Fed has plenty of belts and suspenders.
A Word About Credibility
2/3
This perfectly illustrates both the disconnect and huge credibility problem the Fed has.
As the chart below shows, 4% is already priced in. This is not a bold “hell or high water call.” It should be a milktoast statement of the obvious. But it does not seem to be. pic.twitter.com/h16XwjvA4x
— Jim Bianco (@biancoresearch) September 9, 2022
For more on the Fed’s credibility problem, please see The Fed Will Hike to 4 Percent Come Hell or High Water
This post originated at MishTalk.Com.
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Mish
Moment” of the GFC:
POSTED: Dec 13 2007 06:55 PM |
The Commerce Department said retail sales in Oct 2007
increased by 1.2% over Oct 2006, & up a huge 6.3% from Nov 2006.
RoC trajectory as predicted. Nothing has changed in > 100
+ years
All monetary
savings originate within the banking system. The source of saved deposits is demand deposits, directly or indirectly
via the currency route (never more than a short-term seasonal situation), or
thru the banks undivided profits accounts. Since time deposits (income
held beyond the income period in which received), a component of M2, originate
within the banking system (and there is a one-to-one relationship between time
and demand deposits — an increase in TDs depletes DDs by an equivalent
amount), there cannot be an “inflow” of time/savings deposits and the growth of
time/savings deposits cannot, per se, increase the size of the banking system.
From a system standpoint, TDs constitute an alteration of bank liabilities,
their growth does not per se add to the “footings” of the consolidated balance
sheet for the system.