🇺🇸FED EASING "INFOMERCIAL-STYLE": I have spent many nights these past weeks brainstorming what could they do next. There's a lot to cover (I will in this thread) but after today's Fed easing action its starting to feel like an informercial clip "but wait there is more"...
RATES: They cut the target Fed Funds (FF) rates a 100bp to 0-.25%, one needs to go back to the 1970-80s to see such moves (and back then rates were high vs now near zero). DW rate was also cut to 0.25%, collapsing the spread to FF. Recall that was my view: tinyurl.com/waq8xnr
MORE ON THE DISCOUNT WINDOW (DW) - pt 1: The Fed is leaning on DW to help credit flow in banks to small biz and consumers. Fed is addressing the stigma by removing DW spread to FF, this should encourage banks to use it for their inventory. And they can do so for 90days now!
MORE ON THE DISCOUNT WINDOW (DW) - pt 2: As you can see from this list (see link tinyurl.com/sydrcve) of collateral that can be pledged at Fed's DW, corporates are on the list. This will help banks lend a helping hand if corporates start piling up on their balance-sheets.
NEW IMPORTANT TWEAKS - pt 1: Fed has made available "intraday credit" to support smooth functioning of payment systems (this is key if we see more disruptions related to COVID's impact on timing of cashflows). The big ones are Reserve Req cut, and Bank Capital /Liquidity Buffers.
NEW IMPORTANT TWEAKS - pt 2: Reserve Req. for depository institutions (ie commercial banks) goes to 0. The way I understand it, that really allows vault cash to be unleashed, yes cash money sitting at banks and ATMs. See this old link for more background: newyorkfed.org/research/epr/0…
MBS BUYING IS BACK & QE FOR MKT FUNCTION: The Fed announced $700bn of QE, 500 into USTs and 200 into MBS. They will also start reinvesting proceeds from paydowns back into the MBS market. As per press-conf. sounds like there is no schedule, so they could buy at will and in size!
FX SWAP LINES: In conjunction with BoC, BoE, BoJ, ECB and SNB, Fed opened up overseas access to USD liquidity via the standing liquidity swap line arrangement. They also lowered the rate to borrow to OIS+25bp (a cut of 25bps). They also will make these lines open for 3 months.
WHAT IS LEFT? The PDCF and CPFF (which would allow corporates to issue commercial paper off the Fed's B/S) is still potentially in the wings. Perhaps Tsy Sec'y Mnuchin needs to convince Congress to make a tweak to Dodd-Frank Regs. If things don't stabilize this could still come.
WAIT THERE IS EVEN MORE: Also see this tweet, munis may come under pressure here related to covid, so the Fed may be able to step in:
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