Fed communication is clear, Deutsche Bank's Stuart Sparks writes, in a new note.
Negative short rates have been rejected as a short-term policy tool for additional easing when it comes to combatting the crisis.
"The implication is that additional easing will be provided through balance sheet growth", Sparks goes on to say, reiterating the message from a note out Thursday, and driving home a series of points made previously and documented extensively here in "How Many Trillions Equals Negative 1?"
The parade of Fed officials the market heard from this week were unanimous in rejecting negative rates. If that's too strong, we can say they were unequivocal in indicating that the entire tool kit would be exhausted before considering cutting rates below zero. Jerome Powell attempted to dispel the idea on Wednesday, although as Nomura quipped, his remarks had a kind of Lloyd Christmas feel to them.
If negative rates aren't in the cards, and the Fed intends to engineer policy that's actually stimulative, the balance sheet will have to keep growing. That's the thrust of Sparks's message, which is the same as it was in weeks previous: r* is somewhere around -1%, and absent negative rat
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