While a range of factors may have contributed to these developments, it is clear that without a sufficient quantity of reserves in the banking system, even routine increases in funding pressures can lead to outsized movements in money market interest rates. This volatility can impede the effective implementation of monetary policy, and we are addressing it.
Indeed, my colleagues and I will soon announce measures to add to the supply of reserves over time.
“I want to emphasize that growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis.
Neither the recent technical issues nor the purchases of Treasury bills we are contemplating to resolve them should materially affect the stance of monetary policy…”
Roughly translated: Don’t confuse balance sheet growth for “reserve management” with balance sheet growth for “stock market management”. more …
Opinion: We have been expecting this for months. It began with overnight repos, a mini Quantitative Easing (QE) operation that we were told is no big deal. It just provided liquidity to money market reserves, they said. It continued, and we were told again it was/is just temporary.
Yesterday Chairman Powell announced the recent Fed movers are definitely not QE, but …
- The Fed will start expanding its balance sheet again “soon”.
- Trouble in overnight lending markets several weeks ago helped spur the Fed into action.
- Pertaining to interest rates, Powell did not commit to a future course, saying the Fed will stay data dependent.
The markets are hooked on fresh capital like a vampire, if there were such a thing, needs fresh blood. The addiction to money printing began in 2009 as a means to shore up failing banks. But it came at a time when the stock market was plunging, businesses were laying off tens of thousands of workers, and the whole world was standing on the edge of the abyss.
QE 4 will come at a time of the best employment numbers in 50 years. Economists tell us the US economy is the strongest in the world, and yet there is a problem in the banking system. There is not enough money, and debt is exploding.
The only answer I can come up with is that governments are trying to avoid the normal cycle of economics; a time of plenty (expansion) and a time of famine (contraction). That principle is as old as the book of Genesis 41:25-27 and Jacob’s son Joseph:
“This is the thing which I have spoken to Pharaoh. God has shown Pharaoh what He is about to do. Indeed seven years of great plenty will come throughout all the land of Egypt; but after them seven years of famine will arise, and all the plenty will be forgotten in the land of Egypt; and the famine will deplete the land.”
Politicians and the people they serve have an insatiable desire for more, just don’t call it QE.