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? 

With the FOMC cutting the target for fed funds one quarter point last week, we expect to see funding costs for banks continue to fall, part of the larger narrative that has seen bank loan demand and share repurchases leaving a great deal of dry powder.  Deposits are growing 2x loans, meaning that the balance must go into securities. One of the reasons that lenders of all sorts have been pushing down loan yields is to capture assets in a market that is short quality duration.

As a practical matter, no Fed chairman or governor can function without the support of the White House and the US Treasury.

As the federal debt rises, bank reserves must rise as well and with it inflation.

In 2019, the FOMC essentially nationalized the US money markets, eliminating private price discovery for a representation of a market.

More often than not, Fed Governors use media appearances to enhance their personal celebrity rather than doing their jobs.

The key thing to remember with commercial real estate is the change in price volatility and direction that has occurred since COVID.

The real question is not whether the FOMC can get inflation down to the 2% target but whether it can keep asset prices rising indefinitely

In this issue of The Institutional Risk Analyst, we release the latest edition of The IRA Bank Book for Q4 2023

The Powell Fed needs to drop short-term interest rates back down to 4% and leave them there indefinitely.

Crypto, of course, is not an asset as much as a bad idea that was given life by Quantitative Easing

Demand for risk-free collateral and liquidity is largely a function of how JPMorgan (JPM) CEO Jamie Dimon feels about risk on any given day

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