The Fed has gone into full intervention mode. Not only into full intervention mode, but accelerated intervention mode. Not just a little “mid cycle adjustment” but full bore daily interventions to the tune of dozens of billions of dollars every single day. What’s the crisis? After all we live in the age of trillion dollar market cap companies, unemployment at 50 year lows and yet the Fed is acting like the doomsday clock has melted as a result of a nuclear attack.
Think I’m in hyperbole mode here? Far from it.
Unless you think the biggest repo efforts ever by far surpassing the 2008 financial crisis actions are hyperbole:
What is the Fed not telling us?
I’m asking for a friend. pic.twitter.com/BZK0XuLloV
— Sven Henrich (@NorthmanTrader) October 23, 2019
What indeed is the Fed not telling us?
Something’s off here. See it all started as a temporary fix in September when suddenly the overnight target rate jumped sky high and the Fed had to intervene to keep the wheels from coming off. Short term liquidity issues they said. Well those look to have become rather permanent:
And these liquidity injections are absolutely massive. Just yesterday the Fed injected $99.9 billion in temporary liquidity into the financial system and $7.5 billion in permanent reserves as part of its $60 billion per month in treasury bills buying program. The $99.9 billion coming from $64.90 billion in overnight repurchase agreements and $35 billion in repo operations.
All this action is surprising frankly. What stable financial system requires nearly $100B in overnight liquidity injections. The Fed did not see the need for these actions coming. They are reacting to a market that suddenly requires it. Funding issues Jay Powell called it in October. The Fed was totally caught off guard when the overnight financing rate suddenly jumped to over 5% and they’ve been reacting ever since which pretty much describes the Fed in all of 2019.
What started as a slow walk in policy reversion from last year’s rate hike cycle and balance sheet roll-off (QT) on autopilot has now turned into full blown ongoing rate cuts and balance sheet expansion:
And be clear: This is not a temporary jump in the balance sheet,