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The Fed Doesn’t Matter Any More

Bulletin- Fed Cuts QT by $35 billion per month. This is irrelevant and immaterial in the face of the mushrooming Treasury supply ahead. Read on!   Non-subscribers, click here for access. 

Subscribers, click here to download the report.

Today is FOMC circus day, with the Chairman’s Dog and Pony Show after the main event.  Non-subscribers, click here for access. 

It’s all irrelevant. The First Law of Market Dynamics—Don’t Fight the Fed—has been called into question since October 2022 when a new cyclical bull market was born despite Fed policy. It was tight then, and remains tight now, as the Fed relentlessly drains money from the system by shrinking its balance sheet.  Non-subscribers, click here for access. 

That won’t change until the Fed does more than talk about it. And why should it change. Inflation marches on, and the markets are doing just fine.  Non-subscribers, click here for access. 

Tight Fed policy hasn’t mattered because the players have been determined to create their own liquidity. Who needs QE when you can just borrow your own cash into existence. With plastic in our pockets, we are all mini central banks. We create credit and money by simply spending what we don’t have because the banks give everybody, especially hedge funds and dealers and private equity, a blank check for credit when they want it.  Non-subscribers, click here for access. 

Of course, the Fed had also set up an enormous sludge fund, oops, I mean slush fund, called the RRP facility. That was set up as a piggy bank where all the money market funds deposited all the excess cash that the Fed had pumped into the system during 12 years of QE. At one point in 2022, that fund exceeded $2.5 trillion. That will fund a lot of stock purchases.   Non-subscribers, click here for access. 

And it has.  Non-subscribers, click here for access. 

Gradually that fund was drawn down as the US Government ran persistent huge deficits and had to borrow the money to fund them. Only since 2021 has the Fed not been there to buy all that debt. That debt issuance, particularly in the form of short-term Treasury bills had sopped up all but $330 billion of the RRP slush fund by two weeks ago, April 15. But since then, things changed as we knew they would.   Non-subscribers, click here for access. 

Here’s what it means, along with a road map of how to drive the markets’ winding roads over the next few months.   Non-subscribers, click here for access. 

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Posted in 1 - Liquidity Trader- Money Trends, Fed, Central Bank and Banking Macro Liquidity
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