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Friday, October 7, 2022


Is Quantitative Easing About To End?

Courtesy of Tyler Durden

After having purchased over $243 billion in treasuries to date via a the QE bond buyback program announced in March, in some cases buying the bonds form primary dealers just days after an auction’s completion, the Fed is now expected to wind down its $300 billion Treasury-buying program. As Bloomberg reported recently, “The FOMC “is unlikely to extend the life of these programs, unless, of course, either the economy or the financial markets take a significant turn for the worse,” Meyer, vice chairman of St. Louis-based Macroeconomic Advisers LLC, wrote in a report released yesterday. “We therefore expect the FOMC to announce at its upcoming meeting that it will allow the Treasury purchase program to expire in mid-September.”

An article in MarketWatch highlights the major risks to near-term Treasury levels: “with the Fed no longer a constant, large buyer of Treasury notes and bonds, benchmark yields and mortgage rates will likely rise. But that threat isn’t expected to prompt policymakers, some of whom have expressed increasing alarm over the prospects of higher inflation from the Fed’s ultra-loose monetary policy, to extend the program.”

Expectations that the Fed will allow the Treasury-buying program to die a natural death are part of a broader view that the central bank is moving towards a change in monetary policy.

“If the economy continues to improve, and signs indicate that it is, the Fed will believe that rising rates will be an acceptable cost,” Barclays’ Rajadhyaksha said.

If indeed the FOMC reveals next Wednesday a substnatial change to its ongoing monetary policy vis-a-vis treasuries, the volatility in bonds is likely set to materially increase, and the 4% yield threshold is likely to be promptly breached.

The other major question, of whether the Fed is actually truly convinced that the economy is improving based on data such as today’s “optimistic” BLS report, whose interpretation could just as easily imply that the economy is still trudging along below expectations, is an open one, and for a direct answer look for a change in the tone as pertain to the Fed Fund rate… However, as PIMCO has often noted, do not expect that number to change for at least a year. And if anyone should know, PIMCO is it – of course, meaning that while the mainstream media and other agencies are thoroughly convinced the recession/depression is over, the Fed is nowhere as wide-eyed in its assessment.

And lastly, as disclosed yesterday, the Fed has purchased over $80 billion in agencies over the past month. Don’t look for any monetary moderation in this particular bond buyback program: after all, the U.S. consumer needs to continue living in the bubble of artifically low mortgage rates for as long as possible.

In tangential news, Zero Hedge contributors have provided data that demonstrates that the Fed has monetized roughly 10% of the roughly $1.1 Trillion in debt offered in UST auctions in 2009 alone: of this amount, about $120 billion has been acquired via Open Market Operations, on occassions breaching 40-50% of the purchases allocated to given dealers by unique CUSIP. We well present the statistical evidence over ther weekend.

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