NOTE! This report has been updated here with important previously overlooked information.
Withholding taxes plunged in December. They are by far the largest component of Federal tax revenue. This was not an anomaly. It was a continuation of a downtrend that began in November. This trend is a sign of economic weakness, recession, and most importantly, the fact of less revenue than expected. The US Government schedules Treasury issuance on the basis of revenue forecasts. When revenue falls short of the assumption underlying the supply forecast, it means that Treasury supply will increase. Now this will come from an already heavy forecast level in the first quarter. Non-subscribers, click here for access.
Subscribers, click here to download the report.
Despite market expectations of lower interest rates ahead, the Fed is not yet refilling the punchbowl. The existing punchbowl, the Fed’s RRP facility, continues to be drained. It will run out of funds xxxxxxxxz xxxxxx xxxxxxxx xxxxx xxxxxx. Only the timing is at issue. The fall in tax revenues suggests that the day of reckoning will come sooner rather than later. I’m back to projecting xxxxxxxxx xxxxxxxxxx xxxxxxx, but we’ll adjust that expectation as we determine day by day xxxxxxxxx xxxxxxx xxxxxxxx xxxxxxxx, and whether RRP slush fund withdrawals are xxxxxx xxxxxxxx xxxxxx xxxxxxxxx. Non-subscribers, click here for access.
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