QE by another name? Clarifying announced balance sheet expansion

JP Morgan
By October 24, 2019 07:41

QE by another name? Clarifying announced balance sheet expansion

Following ongoing turbulence in the repo market, the Federal Reserve announced last week that it would begin expanding its balance sheet once more through permanent open market operations (read the latest article on the repo market here: Don’t fear the repo). The purchase program, focused on Treasury bills (shorterdated government debt issued for terms less than a year), will launch at an initial pace of roughly $60 billion over the next one month period, and is aimed at providing an apparently cash-strapped market with extra liquidity to wrangle in borrowing rates. Thereafter, both the timing and magnitude of purchases will be adjusted as necessary to keep liquidity supplies ample and the repo market in check. And yet, says Fed chair Jay Powell: “This is not QE.” But for many investors, Powell’s direct denial of launching another round of quantitative easing is unconvincing. Nevertheless, despite investor misgivings there are clear differences between this latest bout of balance sheet expansion and the post-crisis bond purchase program.

JP Morgan
By October 24, 2019 07:41

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