Once again we see an increase in the Fed's MBS position on the latest form H.4.1 report:
October 20, 2022
1. Factors Affecting Reserve Balances of Depository Institutions
Millions of dollars
|
Reserve Bank credit, related items, and |
Averages of daily figures |
Wednesday |
||
|
Week ended |
Change from week ended |
|||
|
Oct 12, 2022 |
Oct 20, 2021 |
|||
|
Reserve Bank credit |
8,720,725 |
- 4,152 |
+ 203,316 |
8,709,474 |
|
Securities held outright1 |
8,323,037 |
- 7,900 |
+ 284,862 |
8,312,950 |
|
U.S. Treasury securities |
5,621,097 |
- 9,335 |
+ 139,911 |
5,611,953 |
|
Bills2 |
302,260 |
- 2,972 |
- 23,784 |
301,567 |
|
Notes and bonds, nominal2 |
4,843,104 |
- 6,328 |
+ 121,133 |
4,834,667 |
|
Notes and bonds, inflation-indexed2 |
375,761 |
0 |
+ 7,833 |
375,761 |
|
Inflation compensation3 |
99,972 |
- 36 |
+ 34,728 |
99,958 |
|
Federal agency debt securities2 |
2,347 |
0 |
0 |
2,347 |
|
Mortgage-backed securities4 |
2,699,593 |
+ 1,435 |
+ 144,951 |
2,698,651 |
That compares with the expected (idealized) decline of $7.7 billion per week/$35 billion per month.
That brings the shortfall vs the target to $82.5 billiom
Perhaps more troubling is the treasuries position (first time we've said that since QT began June 1). Despite the cumulative shortfall of some $100 billion in treasury paper rolling off (not being reinvested) we've focused on the lack of action in the housing paper, an instrument the Fed had no business getting involved with and a direct cause of the housing bubble caused by mortgage interest rates at half what they otherwise would have been.
However....
The $5.7 billion shortfall in last week's treasury un-reinvested rolloff—$9.3 billion versus the idealized target $15 billion/$60 billion per month, during a week the Fed actually had the paper to cancel:
the $14.7 billion that matured on October 15th.
This raises a few questions:
1) Why did the Fed reinvest $4.4 billion from the maturing paper?
2) What is the Fed going to do with the $28 billion maturing on October 31?
3) What will the Fed do with the proceeds of the $74 billion that matures on November 15?
Will they book the entire amount of the monthly $60 billion cap in that week's H.4.1?
To date the Fed has seemed so terrified by the thought of removing liquidity by way of QT that they have continually undershot the targets that they laid out in the May 4 Fed Board statement.
If that apparent reluctance were to change the shock to the market and the market's psychology would be enormous.
As we said in the past, you don't get the kind of up-moves we've been seeing if the central bank is withdrawing liquidity so, if that were to change it is a pretty big deal.
Previous posts on H.4.1.
Finally, from the Federal Reserve Bank of St. Louis' FRED database a graphic depiction of just how feeble the so-called QT has been. Note: the official start date was June 1, not the high water mark on April 13:
