Fed Seeks Firm Grip On Interest Rates, Supposedly Not QE

-edited

Powell was busy yapping away about the need to control interest rates, looking more than a bit foolish in the process.

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

  1. Repo market
  2. Stock market
  3. 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The stock market was the top dog, superseded by the need to get a grip on interest rates.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

Comments (34)
No. 1-16
Casual_Observer
Casual_Observer

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.

lol
lol

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!

compsult
compsult

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

ksdude69
ksdude69

Now that the elderly have been sucked completely dry with near 0% for years wouldn't be a bit surprising if rates went up.

Bam_Man
Bam_Man

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.

Tony Bennett
Tony Bennett

"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,"

...

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.

CautiousObserver
CautiousObserver

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.

Guinny_Ire
Guinny_Ire

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.

Cheesie
Cheesie

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.

Stuki
Stuki

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.

Maximus_Minimus
Maximus_Minimus

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.

abend237-04
abend237-04

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.

GaiaMoney
GaiaMoney

Allegedly a cunning new version of QE has been thought up by IMF megabrains. It comes with a brand new acronym : E.Q. No prizes for guessing. But here is a clue: It’s currently keeping the Fed at ease. Those with mirror vision probably got it already. It’s a duck insisting on not being a duck : Evasive Quacking. " More revelations on my blog https://gaiamoney.wordpress.com/2019/10/10/qe4-q-e-qd-e-q-qs/

rjornd
rjornd

One more reason we should all invest in what Robert Kiyosaki calls the 4 precious metals - gold, silver, guns, and bullets!