January 11, 2024 | Premium Service | In this issue, we set up Q4 financials earnings for readers of our subscription service. First and foremost, the biggest factor in the analysis remains the lack of visibility on interest rates and related volatility. If, for example, the FOMC ends the runoff of the balance sheet and begins to purchase new securities for the system open market account (SOMA), does this mean that rate cuts this year are off the table?
As we stated in our previous comment, the spoken narrative around the Fed and interest rate policy is about the economy and inflation, but the actions of the central bank are more focused on the Treasury’s ability to sell new debt. If we see the Fed move to curtail portfolio runoff and restart QE purchases to maintain a given level of assets, then net reserve growth will start to boost bank deposits. Deposit growth in 2024 could be the difference between survival and failure for many banks.