The Institutional Risk Analyst

As Chairman Powell said in the latest FOMC presser, the SOMA reinvestment plan is intended to get their duration down to that of the Treasury debt outstanding by allowing long duration MBS to be replaced by short-duration T-bills. Could the Fed have continued to shrink the SOMA further as Bowman and others have urged? 

Why does the US central bank need to pay interest on bank deposits at the Fed? Because we have $35 trillion in public debt. The interest rate on T-bills, bank reserves deposited at the Fed and reverse repurchase agreements (RRPs) issued by the Fed must be roughly the same.

At the Fed, because “confidence” is considered a factor in “policy,” it is OK to fib and obfuscate about the true cost of monetary policy.

QE has created a gigantic interest rate mismatch across markets for banks, non-banks and other financial intermediaries including the GSEs