What did Powell Mean?
I confess, I thought Powell was talking about QE, but I did not see the exact quote. Powell said “organic growth”.
I believe Coppola has the correct intent.
Intention vs Reality
However, Coppola’s point is mostly moot.
What the Fed thinks it will do and intends to do, typically miss the mark badly on what it actually does.
The Fed “intended” to dramatically shrink its balance sheet. Look what happened.
Look at a Dot Plot of interest rate expectations from 2017.
Dot Plot December 13, 2017
Fade This Consensus
That was my precise comment at the time.
Some FOMC participants actually believed the Fed would hike to over 4.0% by 2020 (next year!). The majority believed rates would be over 3.0%.
Fed’s Intended Meaning
So what?!
The Fed may do a brief period of “organic” expansion (which by the way can mean anything the Fed wants), but I propose more QE is coming whether the Fed “intends” to do so or not.
Fed’s 2019 Interest Rate Expectations vs Market’s Expectations
Here’s a look at the Fed’s 2019 Interest Rate Expectations vs Market’s Expectations
I propose the Fed is wrong, again, as usual.
For discussion of today’s FOMC decision, please see Fed Cuts Rates 1/4 Percent, Three Dissents: Dot Plot Suggests No More 2019 Cuts
Finally, we really do not know what the Fed “intended”.
Perhaps the the Fed wanted to open the door for more QE later but without alarming the market of that.
Powell’s words were chosen for a purpose but we really don’t know what purpose!
Mike “Mish” Shedlock
You have to wonder if the Fed has any good options at this point, if they go the way of the rest of the advanced economies into NIRP (we already are in NIRP if you understand that real inflation is a lot higher than the core headline inflation being reported) then it is likely to be a self fulfilling prophetic move that assures a deep and abiding depression. The banking system will be so starved for reserves the Fed will have to essentially nationalize the system. The liquidity problems are just beginning with $203 billion injected into the overnight repo market this week in just three days. The Fed’s 25 basis point rate cut has just made sure they will have to inject more to maintain the now 2.0% fed funds rate.
If the fed starts to expand it’s balance sheet again they will fuel inflation that they WILL lose control of. Just as they are loosing control of their interest rates.
I am curious about something, does anyone have data on the level of Chinese purchases/sales of US debt instruments over the last few weeks? If they are dumping US Treasury paper at fire sale prices that would explain why the repo market is in a liquidity trap. Is it possible that China has begun to liquidate it’s US foreign reserves in a big way? That would certainly drive up interest rates beyond maybe what the Fed can control.
May be the end of planned economy by controlling money supply is near.
Re China, how much treasuries does China have — like 1-2 trillion (I forgot). Trump budget deficit is a trillion per year! We are really doing a number on their savings. External debt is a non factor now.
WWBO $1.1 trillion US$ as of last couple weeks.
A wsj article suggests that Federal borrowing is sucking cash out, as primary dealer banks are “forced” to buy Treasuries. Exchanging treasuries for cash, removes cash out of the money supply and burns it in the bowels of Fed. Sounds plausible. However, cash hoarding is also probably ongoing, velocity of money seems to be decades low. When money are offshore, is it still part of the circulation? I don’t know. Demand from foreign investors shouldn’t change much internal dollar supplies — the money they get for foreign currency goes right into the system.
There is also the ForEx market as economies in NIRP regions are buying here to seek positive yield. They are borrowing from the ECB at negative rates, being paid to take on debt, and turning around and investing that in New York. In fact, there are a lot of global developments that are forcing the hand of the Fed. Argentina for example. But you are right. I say (asked above) if China is going towards the so called nuclear option and selling US Treasuries, that would certainly suck out up to a trillion in cash while pumping up the interest rates, but I cannot see yet where that is actually happening.
We do know that Trump claimed (was it last week or the week before?) that all debt should be refinanced at zero or less rates. Maybe he and Mnuchin are doing just that. If so this draw on the repo market is just the beginning, they would be redeeming all bills, notes, and bonds at a higher price than was paid for them, and reissuing at as close to or under zero interest as they can. As well as that they would be motivated to finance government operations with nothing but debt rather than with tax revenues from the public. Which explains why they also floated the idea of a payroll tax cut just a couple weeks ago, and I also read they have renewed interest in killing off capital gains taxes.
Where is all this going? We can’t say exactly what or when but we can can say it will be a new global economic paradigm. My bet is it will be an unmitigated financial disaster for the bottom 99% and it very well may crush what is left of capitalism, already a very sick little guy.
Re refinancing at zero — that’s very interesting…
Na. The treasury always announces stuff and organizes auctions. There can’t really be a shortage of cash, the banks are still sitting on more than Tr$1.35 of excess reserves, so they are refusing to buy securities for cash even at attractive profits. Either there is somebody in deep trouble or there is some kind of extortion scheme going on.
Yeah, in the wsj article, there was a graph of excess reserves, and there was clearly a lot of reserves left. So, may be some and some don’t have reserves…
Some sort of shock from losses in Argentina. Lots of people piled up lots of cash in there and it all went into smoke. Around August 12, peso went from 43 to 53…
So… Had we never done QE to begin with (ramifications aside) we would normally be around $1.2T on the balance sheet. Instead, we did it, then started to unwind it, had to stop at $3.6T, three times the liquidity you would expect us to need under normal circumstances. And for three straight days now the Fed has pumped another $200B into the market to control the overnight rate. And when you look back at economic growth, the US and World GDP for the past 10 years has been tepid. Yet Bond prices are sky high, stocks well above historical average P\E, Gold is high as well, student loan debt at all time highs, corp debt at all time highs, savings low and debt high among consumers, in a manufacturing recession, entering an earnings recession, wages stagnant for decades, the inflation metric gets changed to give the illusion it is low and not hurting consumers, yet half of the country can’t cover an unexpected $400 bill. All the while Wall Street says “The S&P 500 is still you best bet”, “The bull market is still intact”, “If we go negative on rates and the Fed injects cash, we can keep this party going.” I am reminded of the Allstate commercial where the actor who plays chaos looks into the camera and just says “Smart!”
I think that’s his purpose – to baffle those who gather every word the fed utters to be read like tea leaves. If he were clear in his communications, it would be easy for traders to front-run the Fed. It would also likely terrify traders to see how clueless he his!
Best to be obtuse.
This is complete nonsense. If the FED doesn’t start expanding their balance sheet, what we’ve seen in repo is going to spread everywhere. Interest rates will skyrocket. They can’t pull USD out of circulation while very other CB is printing.
The only reason for them not to print is to kill the economy so a dem will get elected.
You say; “If the FED doesn’t start expanding their balance sheet, what we’ve seen in repo is going to spread everywhere.”
You do understand that the Fed printing with wild abandon has a name in economics right? It is called monetizing debt, it must by black letter economic law eventually result in inflation, and the sums are so stupendous that it will be hyperinflation. The ECB is already doing this and hoping to sterilize all but a couple percent in the form of inflation, it has not worked so far, but, one day it will, and on that day the EU is going to be in very serious trouble. With economies as interconnected as they are and all the leveraged financial toxic waste out there, nobody is going to escape unscathed. The GFC did not get rid of all that toxic paper, it just swept it under the rug for a while.
Bring on the next monetary system. What’s weird about this blog and some of the posters is they recognize the flaw of the current systems but still blame its ills on those most impacted negatively by the system
CO — I think the issues involved are pretty complex to start with, and trying to have even a halfway intelligent debate in a room full of infantile never-Trumpers is an exercise in futility.
The ball is in@[Mish Editor] ‘s court to raise the level of discourse in the comments section. There are other blogs. And not for nothing, there are bars and conferences where wall street traders go in real life to unwind (and not just in NYC). Beer and intelligent conversation, without the babies.
The babies will be impacted by what happens, but they would rather soil their diapers than figure out the real problems. Trump, whether you like him or not (I have a lot of concerns about him, but he is President anyway)… Trump is a symptom, not the disease. I think I have wasted enough time with the babies, and I will see if Mish does something about the infantile comments. Its his blog.
The babies do get loud here and elsewhere, but only because our lives are being shattered by what the Wall Streeters, central banksters, and politicians are doing that serves them without consideration to what is happening to us on Main Street, and we have no power to alter their course. So, it is asking a lot to expect the plantation slaves to stay quiet and do their master’s bidding under threat of severe beating without even the right to bitch about what is happening to us.
I have been saying for YEARS now that inflation, real consumer prices, are far higher than is being reported as the headline number, all the BLS chicanery is now so under counting it that my own standard of living is about 40% lower than just the 2013/14 lease year on my rental contract. In no small part because my rent is 90% higher than that lease, and while I was roundly excoriated by many of you for trying to substitute anecdotal personal accounts of inflation out of control when you insisted that inflation was zero to tame, my reply was and remains, if you cannot trust any official data then anecdotal is the best you can offer.
We are seeing absolutely unprecedented actions in both equity and debt markets, actions that are both desperate and which make no economic sense even to trained financial analysts. Data is conflicting, or impossible to find, quick, what is the current market cap of the NYSE? Unless you actually do a spreadsheet with every share of every firm listed there you cannot know. You may find sites that tell you, but you can also find sites that tell you different things so you cannot trust either.
Mish has warned we would get to this stage eventually, and others have as well, people like to poke fun at the perma bears, people like Peter Schiff, saying even a stopped clock is right twice a day, but here we are, uncharted waters, I say the odds this will turn out good for me or you is about as good as all of us becoming trillionaires. We have been hurtling towards a cliff and we were told that (TY Mish and Chris Martenson) and now we see it clearly out the window. We are riding an economic Boeing 737 Max right into the ground.
Speaking of the never Trump babies… here is@Herkie
Mish has been bullsh!tting his readers about deflation for who knows how long. Anyone who does their own shopping, pays college tuition, health care costs, or property taxes knows that CPI isn’t even in the realm of reality. And yet, Mish (quoting Hussman sometimes) still talks about how deflation is the problem. Only recently has Mish acknowledged that health care costs are many many times what CPI claims.
You Herkie. You and some mal-contents who are not even from the USA argued that the USA needs to do to health care what was already done to public housing. You are fools. I just signed up my family for a concierge medical service. That’s how things work in the UK. The wealthy get concierge doctors, the middle class and poor (increasingly the same group!) get NHS. That’s what they vote for, they deserve to suffer how they vote.
Obama is a corrupt Chicago style politician who steals from the rich and gives to himself and his cronies. Poor people love that! You keep voting for someone like him, and someone like him will keep screwing you until eventually Bernie Sanders or Hugo Chavez finally screws you hard enough that you realize its too late.
Speaking of Bernie, did you see the interview he did about 20yrs ago where he bluntly stated that medicare for all would bankrupt the USA very quickly? Medical costs have climbed much faster than GDP in the 20yrs since. But there are legions of morons who believe in a free lunch, free health care, free everything. Bend over and get what you voted for.
I don’t agree with a lot of Trump’s ideas. And even when I agree with his goal, I find his method of getting there a bit strange to put it nicely. But we are stuck with him for at least four years (eight if the dems keep their current candidates) — so I wish Trump well because it benefits my family when whomever in the White House makes America great again.
But Hilary is still a crook married to a borderline pedophile. If anything, it turns out she is more of a crook than we knew during the election. Politicians like Obama are the reason Chicago is such a bankrupt, murder capital sh!t hole. And the people of Chicago can’t wait to shoot themselves in the foot again.
According to some news outlets, Nancy Pelosi — pompous a-s that she is — is flat out telling Jerry Nadler to stop his mental patient obsession with impeaching Trump. Not gonna happen, so grow up. She dared him to “leak” her thoughts, and then had one of her own staffers leak it.
I don’t care if any of this offends you. You get Obamacare and you get to live in public housing, because that is how you vote. Wall Street isn’t making you vote stupid, they are just taking advantage of your lack of math skills. They can’t screw the middle class without the middle classes help.
Keep ignoring basic math. Keep thinking you can print credit like Zimbabwe and get different results. Keep thinking there is such a thing as a free lunch. Goldman Sachs LOVES people like you
Scarcely know where to begin since your rant is so long and so wrong. I am not a socialist, I am not even a registered democrat. I have nothing to do with health care or it’s costs other than believe firmly that we could have universal coverage at half the current cost if we managed our resources intelligently and got rid of GREED/REDUNDANCY/Private for obscene profit insurance. My own care is VA at no cost to me (earned through military injury and NOT a gift taken advantage of by some welfare leech) and it is a good if not perfect system, far less cost than private and a model for a NHS. But by all means do indulge your ODS (Obama derangement syndrome).
I live in rental housing that I pay for out of pocket without a single dime of any assistance programs for that or any other necessities. Though by all means please continue to insult just about everyone that reads your words, I am sure they will be pleased to find out that an economic “final solution” is not just their own secret desire.
I also have gone WAY the hell out of my way to say as much as I loath Trump and MOST of his mindless supporters I will vote for him rather than vote for any of the current crop of democrats because they would ruin the country with their mad concepts that have failed over and over elsewhere. My former feelings about Trump were prior to seeing the insane BS candidates the democrats put up for 2020. Trump IS garbage, you would think the right could do better, but, he is better than Sanders and his borg and the left that now has bent way too far to the left. So if you are going to cherry pick quotes from your fellow posters here at least try to find something that is halfway relevant and up to date.
Last, thanks for reminding me why I have been a registered democrat since 1975 till this July. I still plan to vote for democrats if I can find any that do not have their collective heads up the far left’s arse. If I cannot I will vote for republicans as long as they are reasonable people and moderates. Otherwise I will promise to write you in if that is okay with you CB.
Why the pressure in money markets? Anyone anyone know the answer?
There’s a lot of demand for USD and not much supply. Look at the chart at the top. The drop on the right is the FED sucking USD out of the economy. While at the same time, every other central bank has a growing balance sheet. The US is the only place to invest in fixed income that will pay interest right now so a lot of foreign money is trying to be exchanged for USD to invest here.
CO — yes, and I wanted to have an intelligent discussion about the financing problems, and how individual investors might respond to it. I don’t claim to have all the answers, but my job gives me an inside view of what is going wrong. A group of like minded people could probably connect a lot of the dots together.
Instead, a bunch of babies wanted to scream about how much they hate Trump.
If those are the sorts of commenters that @[Mish Editor] wants to attract, well its his blog
The New York Fed said it would conduct an overnight repurchasing operation for the third time this week at 8:15 a.m. Eastern on Thursday. The U.S. central bank will offer up to $75 billion of repos, temporarily buying securities from Wall Street dealers to inject liquidity into the system. Earlier this week, a surge in the repurchasing rate, used by hedge funds and banks to fund their trading operations, pushed the fed funds rate above its target range. Fed Chairman Jerome Powell said in a Wednesday press conference that the central bank would stand ready to use its current tools to address pressures in money markets.
Obviously stealth QE (hidden off balance sheet)is ending,why?Simple…..the staggering amount of cash big govt is borrowing,”official” annual deficit is 1.5 -2 trillion,count all the off balance sheet,accounting gimmicks/scams and wala the real annual deficit is north of 3 tril,on top of the trillions that has to be printed to buy/prop up….well…everything!No doubt QE4 will be massive,and with prices on everything already soaring…..lookout below!
Once “Peak Leverage” has been achieved, all sorts of liquidity/solvency problems begin to appear – seemingly out of nowhere, and all at once. We have currently arrived there. Enjoy the bat sheet craziness that will now ensue.
“In the United States, unmoored Markovian money can be manipulated at will by the Federal Reserve in the interests of its sponsors in government and their pseudo-private cronies.”
― George Gilder, Life After Google: The Fall of Big Data and the Rise of the Blockchain Economy
“Most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States”
― Barry Goldwater
And if most Americans should somehow come to understand, it would be the primary job of our “Dear Leaders,” their apparatchiks and public indoctrination institutions, to make sure they obfuscated and complicated it further. To again ensure most Americans did not understand.
After all, institutions and policies aimed solely, 100%, full stop, at absolutely nothing more than robbing most Americans for the sole (even that relative and temporary) benefit of a gaggle of well connected, negative value add, self promoting, useless mediocrities, simply wouldn’t be sustainable otherwise.
Powell essentially said that the Fed doesn’t understand the problem (or doesn’t want to understand that Bernanke’s stupid policies stunted economic growth for decades to come).
At this point, the Fed is spending 99% of its time attempting to deflect blame. Fixing the economy is, at best, a secondary goal.
Stealing from economically healthy savers to subsidize zombie entities was always a stupid idea, and never should have happened. Now the zombies are a big part of the G7 economies, and letting the zombies fail will be much much more painful.
The Fed needed to let nature take its course with the zombies, but instead Bernanke opted for the Bank of Japan “kick the can down the road” approach, which is much much much more costly.
Powell doesn’t have Paul Volcker’s courage, and the politicians (both parties) are self serving dopes. Powell is going to be a sissy and make the problems much worse. The ECB and BoJ already threw in the towel, they don’t matter anymore
ECB/BoJ might not matter but the consequences of their actions will matter if their banks fold and they will matter if manipulation of their currencies vs $ is called out for what it is.
Another example of “don’t matter” until it “matters big time”.
Particularly the Euro. Strange how Southern Europe would have fingers pointed as they devalued to compete pre-Euro but now it’s ok when they all do it collectively.
Wolf Street says what the Fed did in the repo market is normal in non QE environments, and the Fed did intervene in short term repo’s regularly about 10 years ago before QE.
But now, what used to be standard operating procedure is being portrayed “liquidity crisis” and extra-ordinary measures.
However, if Wold Street is correct, we may have a Fake News Storm on our hands, because that which is normal w/o robust growth in QE is being hyped by the Fake New’ers as “liquidity crisis” as a pretext to force the Fed to revert back to the preferred policy: QE.
The obama economy – summed up in one chart.
Amazing the dates of QE to infinity and end date.
Well, it means they will not grow the balance sheet by conjuring up dollars from their keyboard, but they will fertilize it, give it water, let the sunshine in. It will grow in natural, healthy way, in concert with the “healthy” economy which they have nursed back to life from the intensive care unit.
And then spray it with monsanto and spray gmos all over it.
It keeps a lot of analysts who speculate about the meaning of every minute detail employed. That stimulates the economy.
Just like breaking windows do.
Very interesting chart on the balance sheet growth. I can understand the dramatic growth from 2009 – 20012, but why was there still a need to grow so much in late 2013 and into 2014? The economy had already largely recovered at that point.
The Fed discussed tapering at that time and the markets threw a “taper tantrum”
“but why was there still a need to grow”
There is never a “need” to print money. For those who can get away with it, it’s an easy way to enrich themselves and those reliably dependent on them, however. So, why not?
Because the only way for bubbles to keep growing is to continuously pump more money into the economy.
And now, unless we do this, the bubbles will pop.
Recently, the FED stopped pushing USD out while other CBs continued to pump money and the result is a shortage of dollars. This was most recently manifested in the USD shortage in the REPO market.
I smell liquidity crisis.
Refusing to lend to someone who is not able to pay it back is not a liquidity crisis. It is a solvency crisis
The “loan” is overnight. Fully collateralized with government securities. The problem is the demand for cash exceeded the available supply, so the holders of cash (seeing the imbalance) saw an opportunity to extract more yield. A simple supply/demand imbalance. Notice that the rate immediately declined (but not below the FF rate) when the NYFED stepped in and provided cash funding, though they were still “a day late and a few dollars short”.
Right, on your planet no one ever defaults overnight.
Back here on Earth things are a little different.
I’ll wait and see if@[Mish Editor] or @stillCJ decide to ban comments from people like you who clearly don’t know what they are talking about. Its Mish’s blog, and if MoneyMaven.IO wants to attract good advertisers, they are going to tell Mish to fix the crap that is the comments section.
You are a waste of my time even if Mish fixes the comment section
There are bad highly leveraged investments everywhere as far as the eye can see with Central Bank suppressed artificially low interest rates misspricing risk. When this shit blows for real I’m not sure the CB’s will be able to contain it this time since its completely worldwide. Things are gonna get real interesting soon, it’s looking like the cracks are starting to appear.
THE FEDERAL RESERVE had plenty to fret about as it prepared to discuss policy interest rates on September 17th and 18th. Trade tensions and wilting global growth have seen businesses cut back investment in the second quarter of the year. In manufacturing, production and capacity utilisation have been falling since the end of 2018. Though the Fed has described jobs growth as “solid”, some analysts worry that the labour market is wobbling. As expected, these concerns prompted the central bank to lower rates for the second time this year, by 0.25 percentage points, to a target of 1.75-2%. But the meeting was overshadowed by turmoil in money markets.
On September 17th, for the first time in a decade, the Fed injected cash into the short-term money market. The intervention was needed after the federal funds rate, at which banks can borrow from each other, climbed above the level targeted by the Fed. It rose as the “repo” rate—the price at which high-quality securities such as American government bonds can be temporarily swapped for cash—hit an intra-day peak of over 10%. On September 17th the Fed offered $75bn-worth of overnight funding, of which banks took up $53bn. The following day it again offered $75bn-worth. The amount demanded by banks rose to $80bn.