The Institutional Risk Analyst

Paying interest on reserves has nothing to do with whether banks lend and everything to do with enabling the Fed to manage the Treasury market. If you don’t want the Treasury market to remain open, then take away the Fed’s power to pay interest on reserves.  

The leading candidate to be the next Fed Chairman believes the balance sheet could safely shrink to around $5.8 trillion, with bank reserves potentially decreasing to $2.7 trillion. Waller argues that a shift towards more short-term Treasury bills would make the balance sheet safer and more flexible, and he is absolutely right.

We all were more than a little amused to learn that in the most recent bank stress tests the Federal Reserve Board decided to ignore the massive financial and reputation risk in private equity and private credit. With cash bids for private assets plummeting, and sponsors in full flight due to prospective litigation by jilted clients, how do the Fed and other bank regulators retain any credibility? Our friend Nom de Plumber had an appropriate observation...

We have little conviction behind our long positions in AXP and the SPX, thus the defensive recommendation in terms of sell orders.

“Our operative assumption is that the strong economy and continued high inflation expectations will mitigate against any interest rate cuts in 2025,” Whalen notes. “We expect to see the FOMC end the shrinkage of the central bank’s balance sheet, which should help to increase the very low growth rates for bank deposits.”

The Fed's actions in 2008 and again in March 2020 were largely driven by the sole mandate of the central bank -- to keep the Treasury market opening and functioning.

Even as President Donald Trump demands rate cuts, the Powell FOMC is sharply reducing US economic growth estimates

When you see a bank with more than 10% of total assets in MBS, that's a big red flag in our book.

Fed Chairman Jerome Powell now reports up to National Economic Council head Kevin Hassett.

Kevin Hasset is now effectively Powell’s boss on everything other than monetary policy.

Banks continue to show a strong preference for late vintage loans over securities, a fact which may cause loan yields to continue falling

In the strange world of Washington, speaking truth in public is a capital crime. Truth is often revealed accidentally.

Indeed, if President Trump wants to be rid of Jerome Powell he can simply impeach him for violations of the Federal Reserve Act

It’s time for the Fed to get smart on duration risk before circumstances create another money market crisis. 

The markets got their rate cut over the past six months and now may have to give some of that back.

If President Donald Trump wins in November, he’ll be more than justified in demanding Jerome Powell’s immediate resignation.

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.

Notice that the Fed stress test is silent on trillions of dollars in mark-to-market losses facing US banks from COVID-era securities

Powell won’t hit the two percent target, but he won’t change the target either.