First of all, with all the talk about tightening, we are barely at 1.25%….and the goal seems to be around 2-2.5%. What kind of tightening is that? 2.5% is still extremely low historically speaking. How about tapering and reducing the balance sheet? Well, that may sound scary but all the fed is doing is slowly unwinding by stopping to add new assets to the balance sheet, they are not really unloading much at all. Now even if the fed decided to unload it, 2/3 of the balance sheet is just treasury, that’s pointless. So how about the remaining 1/3 that’s about just under $3 trillion in asset. The market can easily absorb it, there is so much money sitting on the sideline, there is over $2 trillion parked in overnight repo and let’s not forget the $3.5 trillion that’s sitting in cash in 401k retirement funds that’s about to enter the marketed by early July. That’s over $5 trillion in liquidity that banks, hedge funds, retirement funds have that are ready to buy.
I think the market is overestimating the impact of feds current action.
Submitted June 28, 2022 at 02:52AM by sendokun https://ift.tt/wLPvf6m
