fed fomc Markets

If ‘QE-Lite’ Reignites Classic QE Trade, Fade It, Goldman Says

"Compression of risk premia is only a side effect".

Over the weekend, we recapped September's epic short-term funding squeeze and made a few comments about what's likely coming next from the Fed in light of this month's dramatics. The unwelcome chaos in the repo market gave short-end rates strategists a rare moment in the spotlight, compelled the Fed to respond with emergency liquidity injections and forced the financial punditry to don their money market expert hats and pretend to care about something they know is important but want absolutely nothing to do with (much like UK politics). The timing left something to be desired. The worst of the crunch came on September 16 and 17, the two days ahead of the September FOMC decision. Given the acute nature of the squeeze, some wanted more from Jerome Powell and the Fed on September 18. Instead, the market got another IOER tweak and a promise to conduct "as need" liquidity ops to smooth things out into month- and quarter-end. Eventually, the Fed released a schedule for the overnight operations and conducted three term repos, some of which were upsized to meet demand. Now, the challenge is to lay the groundwork for balance sheet expansion, starting in November. Read more: The Funding S
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2 comments on “If ‘QE-Lite’ Reignites Classic QE Trade, Fade It, Goldman Says

  1. jyl says:

    An additional $200BN price-insensitive buying of UST in 3-4 months, plus the next 25 bp cut (surely the Fed is not doing to withhold a
    cut in October of all months) seems likely to depress yields. I’m not seeing the trenchant argument for fading this not-QE, at least not on the fixed income side. On the equity side, I think it remains all about trade.

  2. Anonymous says:

    The market doesn’t care and probably doesn’t even understand the nuance and semantics. When the Fed backs off after reaching the target level the market will be shocked as always.

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