What I Learned This Week

The Fed’s newest balance-sheet expansion will reverse essentially all of the asset reductions from QT. What does it mean?

Last Friday, the Fed announced that it would begin $60 billion per month of T-bill purchases at least into the second quarter of 2020. Although the program is considered temporary for the time being, it was substantially larger than expectations and suggests that the yield curve will steepen as the Fed puts downward pressure on short-term rates, which will also ameliorate the net-interest margin squeeze on banks. Granted, the balance sheet expansion does not eliminate all banks funding stresses overnight, and also will not spur faster loan demand on its own, it does signal some relief for the margin squeeze that has weighed on bank shares ever since the Fed’s balance sheet reduction began i…

Want to read more?

Subscribe Today

Already a subscriber? Login here.