Fed economists warn that the Fed will have to halt QT

Could the establishment media be front running for the Fed with these types of cleverly placed articles? With the massive amounts of new Treasury issuances (at least $1 trillion in T-bills since June), the Fed knows it needs to halt QT and is looking for an excuse. Its PhD economists are burning the midnight oil figuring out how the Fed can reverse course while saving face.

Their answer is to declare that bank reserves should now be 10-12% of nominal GDP instead of its prior estimate of 7%. Clever….

Below is an unedited Bloomberg article discussing this very topic. Based on the premise of this article I would be very careful about being overly short UST bonds. Imagine if Fed chair Powell came out of left field and used the rationale established in this article to halt or at least taper QT… It needs to come soon.

If Powell ended or tapered QT he would effectively be throwing in the towel on the Fed’s inflation objectives or would be forced to table it. Maybe the Fed would split the difference and maintain its high Fed funds rates and end to QT. Any serious talk of ending QT would immediately begin a 70 bp rally in longer-dated Treasuries and the shorts would be decimated.


T-Bill Deluge Risks Draining Bank Reserves, St. Louis Fed Warns

  • St. Louis Fed economists sees risk of bank reserves declining
  • Usage of reverse repo tool has stabilized around $1.8 trillion


(Bloomberg) — As the US Treasury borrows heavily in the bills market, the Federal Reserve may find it has to pause its efforts to shrink its balance sheet to ensure the banking system remains stable, according to the St. Louis Fed.

The US Treasury has sold about $1 trillion of bills since June after the government suspended the debt ceiling. The cash to buy this government debt can come from at least two places instead: bank accounts, or money market funds.

Recently money market funds have been holding back on buying the bills, because they can often earn more by just parking their money at the Fed, using the central bank’s overnight reverse repurchase facility, known as ON RRP.

If too much money instead comes from the banking system, lenders could find themselves with too few reserves to meet regulatory requirements, Federal Reserve Bank of St. Louis economists Amalia Estenssoro and Kevin Kliesen wrote in a research note this week. That could force the central bank to halt its quantitative tightening program, known as QT.

“There is a risk that ON RRP balances remain sizable and bank reserves represent the majority of the contraction of Fed liabilities as QT continues,” economists Amalia Estenssoro and Kevin Kliesen wrote. “In this case, regulatory banking constraints could start binding sooner than expected.”

That risk isn’t just academic: the decline in the Fed’s ON RRP facilities seems to have stalled. And bank reserve scarcity has caused problems in the past, most notably in September 2019, when the Treasury increased borrowing and the Fed stopped buying as many Treasuries for its balance sheet.

Overnight financing rates for Treasury securities — widely relied upon by Wall Street banks — spiked then, and the Fed ultimately intervened by re-starting purchases of the securities to add more reserves to the system.

On the other hand, if money drains out of ON RRP, the impact on the financial system will probably be manageable. That seemed to be the path the financial system was heading down almost three months ago. After the government suspended the debt ceiling, demand for the ON RRP dropped as low as $1.717 trillion on July 18. But the ON RRP has since stabilized at levels closer to $1.8 trillion.

Wall Street strategists estimate the Treasury has another $600 billion of T-bills to issue between now and the end of the year. That probably won’t fully deplete the ON RRP in the second half of the year, according to the economists.

The St. Louis Fed economists said that in the last bout of quantitative tightening, about five years ago, bank reserves needed to be equal to about 7% of nominal gross domestic product to prevent money market rates from spiking. Given current GDP, that would amount to about $1.9 trillion of reserves.

But a higher level might make sense, according to the economists. In the Fed’s most recent survey of senior financial officers, roughly 78% of bank representatives who responded reported that their institution prefers to hold additional reserves above their lowest comfortable level.

“Financial markets keep evolving and desired liquidity may be something closer to 10% to 12% of nominal GDP ($2.7 trillion to $3.3 trillion), with the current level of reserve balances already around the upper bound of the estimate,” Estenssoro and Kliesen wrote.

©2023 Bloomberg L.P.

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17 thoughts on “Fed economists warn that the Fed will have to halt QT

  1. Economics
    Bloated Government Debt Is Here to Stay: Jackson Hole Paper

    •Authors see ‘good reasons’ for interest rates to trend higher
    •Inflation not a sustainable route to reducing debt, they write

    August 26, 2023 at 11:07 AM EDT

    Swollen government indebtedness — and the upward pressure that puts on interest rates — is here to stay, according to a paper to be presented to the Federal Reserve’s annual Jackson Hole symposium on Saturday.

    “High public debts are not going to decline significantly for the foreseeable future,” International Monetary Fund economist Serkan Arslanalp and University of California, Berkeley professor Barry Eichengreen wrote in the paper. “Countries are going to have to live with this new reality as a semi-permanent state.”


    1. “Serkan Arslanalp”
      “Barry Eichengreen”

      I wish our economic guidance was provided by people with names like “Adam Smith.”

  2. For those old enough to remember this on TV. Barnaby Jones had a great intro theme.


    To truly understand this conspiracy against the remnant, mankind, and old America it starts with having the proper perspective. I am sorry to say that those who were raised in the 80s and later are handicapped with being overly vaccinated, socially re-engineered at early schooling to believe we are all the same, and to be indoctrinated in the Communist concepts of racism, feminism, social justice, diversity, multiculturalism, and government intervention.

    The true remnant comes across as a bunch of old school xenophobic racists, because these older folk know what works and what doesn’t.

  3. CA 2017 with the Santa Rosa fires must have been the starting point of reeling in all those pesky folks living outside the megaregions. The entire world is a redevelopment zone!

    People thought I was crazy for suggesting this or politely dismissed my theory. The circumstantial evidence of targeted fires is overwhelming but be careful of the alt media’s claims of DEW. This does not suggest that DEWs don’t exist or can do exactly what is claimed, but I believe it’s a straw man argument.

    How so you ask? When you see the many hour long videos on alt media sites explaining in great detail how DEWs work and so on, that should be a red flag. They are selling a story that will later be proven false; and those who went for it will look like fools. The MSM has more truth than one thinks. It’s just cherry picked or certain bits are omitted. The MSM is a very well oiled machine and I believe includes the alt media as part of the power train. This is discussed here quite often as all these information sources are part of the SoS. Example: Trump was an alt media hero. He now has a mugshot. Yes, I agree the timing of all this is rather convenient.

    Some tips to help spot a narrative that is designed to reel in various groups of people:

    *If a story is trending on google then they want you to know about it.

    *When you see material explaining a viewpoint in great detail from a source contrary to the MSM.

    *The best solutions are always the simplest and cheapest. For example, to start a fire would you use high tech expensive military equipment or allow a more common source of fires that no one can refute? PG&E was thrown under the bus in CA for fires and they effectively rolled over without a fight. A story of how profits over safety by evil corporations caused a disaster will always push the public into accepting centralized control. Newscum was involved with picking a new BOD for PG&E and at the time I said PG&E will be a state owned utility at some point. I just did a quick search and found this https://letsownpge.org/ Looks like the narrative is starting.

    *The stage was set long before the actual disaster. You can’t turn the Titanic on a dime. Subtle events over many years must take place prior to the other shoe dropping. Example: The 08 housing crisis was largely set up under Clinton when he put that plan to action where everyone can buy a home. That set up the loose lending standards. The loose lending standards set people up for foreclosure. And get this, those who got hit the hardest were likely life long renters in not so good areas who took the bait (and hated their “greedy landlords”). Massive inventory of now low priced homes gets bought up by Blackrock and Chinese with cash. The aftermath is Dodd Frank to rewrite all the lending policy, which basically says one has to actually qualify for the loan. Meanwhile, what I call communist housing projects, were going up all over during the worst housing crash in our lifetimes.

    After all this I’m even more convinced that the Gov’t does not work for the people. We go from one administration to the other watching as the current one over turns everything that the predecessor did while promising to make life better going forward. ….Until his successor gets into office.

    I will maintain my position to never set foot in a voting booth, and by doing so might be suggesting that the majority is fed up with the status quo and demands change. Why else would such extravagant waste and blatant stupidity be allowed to go on? It’s possible by not voting we are sending a message that we are not counting on. The establishment may use that data (and create a narrative) that suggests people need to be ruled by centralized control (communism) but you can’t say communism anymore.

    1. Great point about voting. I am strongly leaning towards not voting neither in the primary nor general elections next year for several reasons:

      1) These elections are set ups to make voters feel like they have a choice when they really don’t. The candidates that get nominated pretty much propose the same things on the big issues. The only difference is the degree of action. Case in point when Romney ran against Obama. They both instituted similar health insurance mandates. Romney introduced health insurance mandates as governor of Massachusetts. Bob Dole had no new ideas and was as liberal as his opponent Bill Clinton in the 1996 presidential run. There is no real difference of ideas between the candidates. They are mum on the real issues of SOS being in control for their selfish gain.

      2) When there is a serious opponent that is gaining traction then the SOS digs up dirt to discredit the opponent to bring him or her down in the polls or they have him or her assasinated if the masses do not discredit the candidate in the polls.

      3) If an opponent does get a majority of the actual votes then the SOS will stuff ballot boxes in favor of their choice against the opponent or they will get illegals to vote against the opponent. So far they have gotten away with it. The 2020 election appears to have been stolen as Trump was ahead in key swing states at 11 PM that night and then they suddenly stopped the counting and then “miraculously “ found votes for Bidet the next couple of days . Bidet’s win is very suspicious.

      4) There are too many asses who actually vote for the socialist candidate. The USA as well as the rest the world is trending towards socialism among the younger generation while the older more conservative generation is dying off. If you don’t agree with the socialist trend you will be outvoted any way and your opposing voice won’t be considered anyway.
      I think the 2022 elections the Demonrats were better at bringing out their voters than the Republicans solely because there are more Demonrats than Republicans. That is why the “Red Wave” never happened. I also think there was ballot box stuffing in 2022 as well.

      5) The elections have become way to divisive. Too much acrimony. Too much
      I am right and you are wrong.

      I would only consider voting if the mainstream media discourages voting. Lately they have been pushing voting and “democracy “ while it is really a sham.

      It feels very liberating to step aside from all this political bickering. This world is beyond redemption of which elections are only a distraction. Mark Twain said that voting does not work otherwise they would not allow it.

      The only redemption is through Jesus Christ and his heavenly kingdom. Understanding and acting on the teachings of The Holy Bible is the only way to save yourself.

      1. I have also seen too many elections where most of the public has complained about an incumbent candidate and yet they still get re-elected. Other instances I see good middle of the road candidates lose out to incompetent or extreme idiots. This is a combination of the majority of voters who are asses and/or vote rigging in favor of the incumbent. The 2020 elections have really woke me up that these elections are a huge waste of time.

        In fact, whichever way you vote(even for the losing candidate), your voting still validates the winning candidate. That is also a case for not voting in the next election.

    2. The controlled opposition like Marjorie Taylor Green was hard at work in pushing the MSM narrative.

      You either believe the fires were started by “Jewish space lasers” or you believe they were natural. There’s no room for simple arson.

      Note also how the media will allow Jewish conspiracies to be connected to absurdities like space lasers, but not things that actually happened like Jeffrey Epstein or the dancing Israelis.

      Either you trust the crazies or you trust the mainstream narrative. There is no room for rational skepticism.

      1. That’s right. In many cases I say the fires were started by tweakers with matches and we did see that arson was a causes of some fires. But generally speaking I agree. You must either believe from the blue camp it’s climate change or from the red camp it’s space lasers.

        Something else that caught my attention. They say man made climate change. Well, weather modification is a real thing and man made. Cloud seeding is real and openly admitted by farmers and utility companies. So why not modify the weather for the perfect fire recipe? And I’m sure in perfect timing to fund the project.

        I just found this informational article about the dangers of low humidity and high winds (note the 2018 date). https://www.bigcountryhomepage.com/news/main-news/invisible-danger-low-humidity-high-temps-can-create-electrical-arcs-between-power-lines-and-trees/

        …..And also just found this explaining how Maui got so out of control.

        “Unusual weather conditions are driving Maui’s wildfires.”

        The technical explanation of “Jewish lightning.”

      2. What you mention in logic terms is a false dichotomy and thus the baby is thrown out with the bathwater. By framing it as such, the argument presents any truth in a disingenuous light with two arbitrary and false sides, while creating a strawmen argument that can easily be shot down. This allows the presenter to continue conducting its actions in broad daylight and in front of the confused observer.

        1. Of course there has to be a term for such practice! Thanks for the education.

          If we were to make a presidential campaign sign saying “Falsk Dikotomi 2024” I wonder how many people would cast a vote?

          1. The voter turnout would be more heavily Democrat. This is a common technique of the synagogue and is very useful in their ongoing Delphi technique to reshape humanity.

  4. No good news from Jackson Hole. The FED is still sticking to its 2% inflation target.

    1. Mr. Evans,
      I would like to thank you for your advice on SFR. I just sold a property that was bought 2 years ago and made 100,000 profit on it. The house when bought already had a new roof and oil burner so nothing needed to be upgraded. That together with my wage slave income has allowed me to
      come out ahead. I would not have bought it without you pounding the table to buy real estate. Will now downsize. Thanks again for your help.

    2. I want to also thank you for your insistence. I never sold any stocks in my retirement account during the heights of the scamdemic and I purchased a rental property for the first time. Both ended up doing very well and give me breathing room. It’s easy to see how most people buy high and sell low. You recommended the opposite.

      1. It’s nice to know somebody listens to my analysis. Thanks….

        I always include the conspiracy aspect with my analysis. If the SoS want unbearable housing costs for the masses they start with sky high prices. Then they make rent expensive. The SoS money enters the SFR sector via private equity, which creates tremendous demand at the margin. By providing a constant source of at-the-margin demand, the private equity drives up prices and rents.

        Then the SoS makes financing expensive. Then it drives up taxes and insurance as well as creating burdensome regulations that only the large landlords can manage. This drives out small landlords.

        This is why I have been begging the people to stay in the sector and adjust accordingly. It may seem very difficult, but the alternatives to not being invested in SFRs are even worse…

        As we see how socialism is just a mechanism to consolidate wealth and power while softening up the masses, we see why stocks rise so high during times of massive social largesse.

        In many ways, this is very predictable when we consider the conspiratorial aspect in the asset markets.

    3. Dear Mr. Evans,

      Your insights are very much appreciated, indeed. That includes by those who have no property.

      Re your suspicions:

      All of which perfectly fits into the Allegory of the Cave, as do Central Banks etc.

      Thank you for sharing your much needed knowledge, helping others to remain “cool”.


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