Posted on 01/26/2022 11:30:09 AM PST by Tell It Right
This is a comparison of Wednesday’s Federal Open Market Committee statement with the one issued after the Fed’s previous policymaking meeting on Dec. 15.
Fed isn't raising rates, but added language saying rate hikes are a comin'.
Probably the only reason to not raise rates is covid is surging more than smash-n-grabs in Dim cities and that might raise unemployment. So we're not raisin' rates now even though we have a strong labor market and inflation is rocketing higher than 2 percent, and that's just CPI, not the real inflation normal folks pay for normal stuff.
In February the Fed Reserve will increase its holdings of treasuries by $20 billion (was $40 billion) and repo's by $10 billion (was $20 billion).
"Repo's" in Fed talk isn't referring to the Fed buying repossessed homes. It's about banks getting overnight loans from the Fed largely about not having to have as much cash on hand for deposits (regulations put in place to prevent future runs on the banks like during the Great Depression). Basically, it allows banks to have more liquidity to invest.
So if I understand this, the really big banks can loan out more than they have cash on hand for, because they can raise cash by selling these overnight to the FED. This helps the really big banks compared to small banks who don't have such easy access to liquidity. What am I missing here?
There will be no rate hikes until after the 2022 elections. Count on it. The fed will claim inflation remains below 10% and transitory, but in reality it will be in the 18 to 22% range by years end and it is here to stay. Retires hit hardest, but mostly old white men.
So the Fake market stays the fake market as best as it can for now right!?!?
Thanks, very useful!
You can see the possible plan:
Democrats in control of government, and the economy is at least "somewhat stable".
Republicans win big in Fall 2022 and -- BOOM! -- rates skyrocket, economy crashes, and Trump is blamed.
“So if I understand this, the really big banks can loan out more than they have cash on hand for”
All banks no matter their size can always loan out much more money than their deposits and have always been able to do so.
The last time I checked, reserves had to be about 3% of what is loaned out.
“There will be no rate hikes until after the 2022 elections.”
I think there will be at least one rate rise, maybe two, depends on how things go from here.
Trading market is not comforted appearantly.
Remember the classic Christmas movie It's a Wonderful Life and the run on the banks at the end of the movie? In real life a media scare happened and people thought banks would go bankrupt soon --- everybody thought needed to get their money out before that happened. Of course, the banks had only some of their money as cash on hand for withdrawals because most of the assets were invested to make money. This "run on the banks" is what made the great depression "great" (as in big, not really good). So to keep that from happening again the gubment stepped in and created the FDIC as a government run insurance company. Basically the banks pay an insurance premium to it and abide by the rules so that you, the banking customer, know that your money is federally protected even if the bank goes bankrupt. One of those rules the banks had to abide by for years until covid (and if I remember correctly, this was slacked some 13 and a half years ago because of the mortgage crisis in 2008) is that the banks have to keep at least a certain percentage of their customers' overall balances as cash on hand in case a large swath of customers need their money immediately. That rule has been relaxed greatly in the era of the china virus by allowing the banks to consider these overnight loans from the Fed as part of their "cash". Thus, the banks are allowed to invest closer to 100% of their assets than they had prior to covid. By the Fed today saying their lowering the monthly repo purchases they're in effect saying the banks have to keep more of their cash on hand (less investing with little room for error). This is one of the main ways the Fed has inflated the stock market -- probably more important than lower interest rates. And the Fed today has announced they're not going to do as much of it -- taking away some of the punch bowl that's inflated stocks.
It's not as much as some were predicting (hence stocks jumped after the Fed announcement). But in the near future I expect stocks to drop as a generation of investors realize that the totally awesome returns we're used to for the past 13 years are an anomaly, not the norm.
Just guessing says there will be a couple or so piddling 1/4 point hikes.
It was no surprise, which is perhaps why the stock market jumped after the Fed announcement. But it's official now. I expect stocks to go down in the near future.
Small business cannot take current conditions for another year.
Thanks!
They have no choice but to raise rates. Even a modest raise probably won’t lower inflation much. The Feds have run out of baling wire and duct tape. The stock market will continue it’s correction.
I assume you mean to type percent as opposed to person in the above sentence; am I correct?
Correct on “person” was meant as “percent”. Sorry about that.
And the Fed statement killed the market...
Ummmm....MBS by $10 billion, not repos.
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