[ad_1]
The Federal Reserve’s balance sheet increased by $300 billion in one week, causing debate about whether this measure qualifies as quantitative easing.
The article below is an excerpt from the latest issue of Bitcoin Magazine PRO, Bitcoin Magazine’s premium marketplace newsletter. Be the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
Last Resort Lenders
Just days after the fall of Silicon Valley Bank and the creation of the Bank’s Term Funding Program (BTFP), there has been a significant increase in the Federal Reserve’s balance sheet after a full year of declines through quantitative tightening (QT). PTSD from extensive quantitative easing (QE) is causing many to sound the alarm, but the changes in the Fed’s balance sheet are far more nuanced than the new regime’s shifts in monetary policy. In absolute terms, this is the biggest increase in the balance sheet we’ve seen since March 2020 and in relative terms, it’s the outlier that caught everyone’s attention.
The main takeaway is that this is a far cry from the QE spree of asset-buying and stimulating easy-money with near-zero interest rates that we have experienced over the last decade. It’s about certain banks needing liquidity in times of economic hardship and those banks getting short-term loans with the aim of covering deposits and repaying loans quickly. Not outright purchases of securities to hold the balance sheet indefinitely from the Fed, but rather short-lived balance sheet assets while continuing QT policy.
Nonetheless, this is a balance sheet expansion and increased liquidity in the short term — potentially only a “temporary” measure (still to be determined). At the very least, this injection of liquidity helps institutions not become forced sellers of securities when they should. Whether it’s QE, pseudo QE, or not QE, that’s the point. The system is once again demonstrating fragility and the government must step in to avoid running into systemic risk. In the short term, assets that thrive on increased liquidity, such as bitcoin and the Nasdaq have been torn higher at the same time.
This specific increase in the Fed’s balance sheet was due to increases in short-term borrowing in the Fed’s discount window, loans to FDIC bridge banks for Silicon Valley Bank and Signature Bank and the Bank’s Term Funding Program. Discount window loans are $152.8 billion, FDIC bridge bank loans are $142.8 billion and BTFP loans are $11.9 billion for a total of over $300 billion.
A more concerning increase is in discount window lending as it is a last resort, high-cost liquidity option for banks to cover deposits. It was the largest discount window loan ever recorded. Banks using the window remain anonymous because there is a legitimate stigma issue with knowing who needs short-term liquidity.
This brings back recent memories of the 2019 emergency liquidity injection and intervention by the Fed into the repo market to stabilize cash demand and short term lending activity. The repo market is the main overnight financing method between banks and other institutions.
Download “Banking Crisis Survival Guide” FREE Today!
Get a copy of your full report here.
Upcoming FOMC Meeting
The market is still expecting a 25 bps rate hike at the FOMC meeting next week. Overall, the market turmoil has so far not proven to “break things up”, which would require an emergency pivot from central bankers.
On track to bring inflation back to its 2% target, the month-over-month Core CPI still increased in February while initial jobless claims and unemployment did not move much. Wage growth, especially in the services sector, is still quite strong at a 3-month annualized rate of 6% growth last month. Even if it’s a bit down, there’s more unemployment where we have to see more weakness in the labor market to make wage growth much lower.
We may still be far from the end of this year of chaos and instability, as each month brings a new level of uncertainty to the markets. This is the first sign of a system that requires Federal Reserve intervention and swift action. It likely won’t be the last in 2023.
That concludes the quote from the latest issue of Bitcoin Magazine PRO. Subscribe now to receive PRO articles right in your inbox.
Relevant Previous Articles:
- Banking Crisis Survival Guide
- Key PRO Market of the Week: The Market Says Tightening Is Over
- Biggest Bank Failure Since 2008 Sparked Fear Across Markets
- Banking Problems Brewing In Crypto-Land
- A Tale of Tail Risks: Fiat’s Prisoner’s Dilemma
- Bank Of Japan Flashes And Markets Shake
- Bubble Everything: Market At Crossroads
- Silvergate Bank Faces Run On Deposit As Share Price Plumps
- Counterparty Risk Happens Quickly
- Not Your Average Recession: Unraveling The Biggest Financial Bubble In History
[ad_2]
Source link
