Is the Fed still Tightening Quantitatively???

Data released on reserves held by depository institutions that were borrowed from the Federal Reserve through the Discount Window (DW), Paycheck Protection Program (PPP) Liquidity Facility (PPPLF), Bank Term Funding Program (BTFP) announced on Mar 12 and other lending facilities show a sharp surge in use of Federal Reserve Facilities.

To put things in perspective, the Primary credit discount window as on 8th March was availed to the extent of USD 4.6 bn which surged to USD 153 bn post the SVB Crisis. If you look at the chart number 1 below, on the left hand side of the chart , you would observe the peak usage before the collapse of SVB Bank to the tune of USD 111 bn as on Oct 29, 2008.

The PPPLF is a covid era measure with nothing home to write about. The BTFP facility which became operational on 13th March 2023 saw usage to the tune of USD 12 bn (Chart 2). Other credit extensions rose from zero as on 08th March 2023 to USD 143 bn in the aftermath of the crisis (Chart 3).

Other credit extensions includes loans that were extended to depository institutions established by the Federal Deposit Insurance Corporation (FDIC). The Federal Reserve Banks' loans to these depository institutions are secured by collateral and the FDIC provides repayment guarantees.

The Federal Reserve's balance sheet rose to USD 864 bn in the week ending 15 Mar 23 from USD 834 bn in the previous week, a change of USD 297 bn. Fed's balance Sheet had touched a peak of USD 8.97 trn on 13 Apr 2022 and thereon gradually reduced to a low of USD 8.34 trn as Fed started unwinding its balance sheet. Fed is currently doing QT at the run rate of USD 95 bn per month.

The balance sheet change of USD 297 bn comes primarily from San Francisco District est at USD 233 bn and USD 55 bn from NY district. A WSJ article helps us further understand this - USD 55 in NY is estimated to come from Signature Bank and the balance USD 88 bn for SVB Bank. First Republic said it borrowed upto USD 109 bn from the discount window which suggest USD 197 bn went to First Republic and SVB Bank. The articles also goes to mention that the numbers suggest that there may not be large demands from many banks across the the 10 Fed districts.

On the one hand Fed is doing QT and on the other hand Fed is providing huge liquidity to the markets. Does the situation catapult into sharp deterioration in financial conditions and Fed starts cutting rates and announces an end to QT or markets regain confidence as Central Banks come to rescue...

We watch as the situation develops....

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The Moment of Reckoning is here !! 25 or 50 Bps and the SEP || Benign PCE Expectations || USDJPY 145.75 or 137.50 ??

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Embedded Narrative - Soft Landing | Benign Inflation | US2s H&S in play | US2s10s bull steepening

One of my favorite poem is by Kahlil Gibran and thought I'd share a couple of lines with you all... Do not live half a life and do not die a half death If you accept, then express it bluntly, Do not mask it If you refuse then be clear about it for an ambiguous refusal is but a weak acceptance Do not accept half a solution, Do not believe half truths, Do not dream half a dream, Do not fantasize about half hopes To reach and not arrive, Work and not work The half is a mere moment of inability, but you are able for you are not half a being You are a whole that exists to live a life not half a life” On that note, quick weekly roundup for the US markets below: The Fed Fund Futures are pricing in 88% probability of a rate cut by September Policy. The Atlanta FED GDPNow Estimates for Q3 growth readings are running at 2.8%. The Cleveland Fed estimates for Core CPI and Core PCE are running at 0.27% and 0.22% respectively mom. In the last blog piece...

Shroedinger's Cat ~ Preparation is the Key to play markets || US Politics || Macro Musings

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