The Fed on Thursday said it would slow the pace of daily bond buying again.
Next week, daily purchases will be reduced to around $30 billion from $50 billion. The daily pace peaked at $75 billion last month.
This comes even as Jerome Powell steps up support for the US economy via a dizzying array of liquidity facilities and lending vehicles, all aimed at addressing pressure points and papering over the myriad cracks that have shown up over the course of the coronavirus crisis.
The latest update shows the Fed’s balance sheet rose above the $6 trillion mark this week as ongoing purchases under the unlimited QE regime announced in March swell the central bank’s holdings.
The Fed purchased more than $270 billion in assets over five days, down markedly from the pace of accumulation seen during the previous three weeks, but still a staggering figure.
Meanwhile, foreign central banks have sold $21.7 billion in Treasurys so far in April.
You’ll recall that last month, marketable US Treasury securities held in custody for foreign official and international accounts dropped by $109.011 billion, a record, underscoring the extent to which March was defined by a mad dash to raise USD cash.
That fire sale of USTs in an effort to obtain dollars was in no small part responsible for the Fed’s decision to roll out a foreign repo facility to compliment swap lines which were enhanced and expanded last month during the tumult.
Late last week, IMF Managing Director Kristalina Georgieva told reporters the fund is pondering the establishment a vehicle to provide USD liquidity to countries without enough Treasury collateral to access the Fed’s foreign repo program.
That, I noted, was a clear indication that the Fed’s actions may not be enough to supply sufficient dollar liquidity to a thirsty world.
The bottom line, apparently, is that there’s demand for dollars that goes beyond the needs supplied by the 14 central banks covered by the swap lines and in excess of what can be obtained via the foreign repo facility.
Although I don’t want to read too much into it, it’s worth at least mentioning that if you go by the weekly reporting for foreign official holdings (which is from Wednesday to Wednesday), foreign central banks have sold Treasurys in six consecutive weeks, with the last four weeks all seeing at least a $20 billon reduction in custody holdings.
You can draw your own conclusions, but one might be inclined to suggest that, at least on the margins, the world is still short on US dollars.
