‘QE Lite’ Is Here! And It Starts Next Week…

‘QE Lite’ Is Here! And It Starts Next Week…

The Fed has officially rolled out "QE-Lite" and it will begin next week. In keeping with the notion that policymakers want to return to an "ample" reserves regime with a "buffer" as quickly as possible following September's repo chaos, the Fed will initially purchase T-bills at a rate of $60 billion/month starting on October 15. That figure is consistent with what some desks had projected on the heels of Jerome Powell's speech in Denver on Tuesday. Read more: Here’s How Much The Fed Will Bu
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4 thoughts on “‘QE Lite’ Is Here! And It Starts Next Week…

  1. if this new QE is designed to drive down short term rates, so the Fed funds effective rate can catch down to 90-day tbills, this will/may resteepened the yield curve. on an up market day that will be said to be bullish for econ growth. the last couple times the yield curve resteepened after being inverted, we went right into recession at about .33% ‘normalized’.
    .25bps cut and some bond buying might just do it before year end.

  2. Can you explain the difference between “Federal Reserve’s non-reserve liabilities” and “Federal Reserve’s reserve liabilities”?

  3. Not that it matters, but here’s an FYI from deep inside the Fed’s intestine, i.e., another layer of slime related to collateral and the moving target of repo valuation. This apparently is a weird issue which makes repo more attractive outside the U.S, e.g., foreign banks. Basically just a peek inside the sausage making factory and one of the rooms involved with Basil lll’s Statutory Liquidity Ratio & Cash Reserve Ratio and the confusion between cash and illiquid treasury garbage ,,,

    Regulatory Capital Rules: Implementation of Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies

    A bank holding company whose measure of systemic importance exceeds a defined threshold would be identified as a global systemically important bank holding company and would be subject to a risk-based capital surcharge (GSIB surcharge). The GSIB surcharge is phased in beginning on January 1, 2016, through year-end 2018, and becomes fully effective on January 1, 2019.

    The proposal aligned the definition of “secured funding transaction” with the definition of that term in the LCR rule. As such, it included repurchase transactions, securities lending transactions, secured funding from a Federal Reserve Bank or a foreign central bank, Federal Home Loan Bank advances, secured deposits, loans of collateral to effect customer short positions, and other secured wholesale funding arrangements. These funding sources were treated as short-term wholesale funding, provided that they have a remaining maturity of less than one year, because counterparties are more likely to abruptly remove or cease to roll-over secured funding transactions as compared to longer-term funding. This behavior gives rise to cash outflows during periods of stress.

    … banking organizations view capital as a relatively costly source of funding. If it is, then a firm with elevated capital requirements also has a concomitantly higher cost of funding than a firm with just the generally applicable capital requirements. And this increased cost of funding could, if calibrated correctly, offset any cost-of-funding advantage derived from the too-big-to-fail subsidy.

    https://www.federalregister.gov/documents/2015/08/14/2015-18702/regulatory-capital-rules-implementation-of-risk-based-capital-surcharges-for-global-systemically

  4. Pretty weird that the above reg was just written about by Jeff Snider today. Hmmm … maybe this has to do with keeping liquidity flowing and making sure that operational costs don’t eat too deeply into arbitrage margins????

    Yesterday, the Financial Times reported that the Federal Reserve has agreed to set aside rules it was contemplating which would have imposed strict liquidity requirements on domestic branches of foreign banks.

    The Federal Reserve will announce on Thursday that it has decided against forcing US branches of foreign banks to hold a minimum level of liquid assets to protect them from a cash crunch, according to people familiar with the decision.

    https://www.alhambrapartners.com/2019/10/11/benign-neglect-check/

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