The Federal Reserve will be announcing their interest decision tomorrow for the last time of 2019. Market expectations are for the Fed to remain on hold. However, when we peel back another layer of the onion and look at the overnight lending market, we continue to witness further deterioration in the foundations of this mysterious market. It was only back in September when Chairman Jay Powell told us that the issues in the O/N market were temporary – due to Q3 taxes and Treasuries rolling over and coming due. Nothing to see here. Pay no attention to the man behind the curtain. We warned you then and warn you again that this was not temporary and that something serious could be lurking just beneath the surface. What this problem might be is anybody’s guess, but it’s not good when the O/N rate reaches near 10% – well above the Fed Funds Rate of 1.5-1.75%. This means the Fed lost control and the market gained control. And newsflash – the market always wins – as it should.
This caused the Fed to embark on non-QE, QE to the tune of $60B/month, but only buying short-term bills for the time being. Also, the Fed essentially is the O/N repo market (so much for temporary), providing upwards of $120B on an overnight basis. Then throw on top of it all, term repo, which is tens of billions more. Surely, this is being done because this is the “greatest” economy ever (sarcasm), and stop calling me Shirley. The Fed is now placed in a situation where we’re nearing the end of Q4 and those same liquidity issues of taxes coming due are a reality (recall Q4 2018). We also have stocks at all-time highs, supposedly low inflation, and an unemployment rate that is at a 50-year low. So, how can the Fed justify a rate cut, or officially announce QE4 is here and here to stay? We don’t advocate for this action, in fact, we want nothing more than the market to clear the markets of these malinvestments – as painful as it would be, but it is the right course of action. However, to keep the “system” alive, the Fed may have to resort to lower rates and QE, just to keep the system afloat – but for how much longer? And it’s not likely to last long. Because why? Because markets always win. Stay diversified, stay vigilant, and stay with The Kapital News. #Recession #Economy #EndTheFed #Politics #Truth #Justice #Peace #Republic