Fed Acts Again

The Federal Reserve (Fed) has come in yet again on an inter-meeting basis. Here’s the quick take:

• First up, quantitative easing (QE) is being revived to include the whole Treasury maturity spectrum, not just T-bills.

• More importantly, the Fed will be increasing the size of its repo operations to $500 billion each today and tomorrow. That’s $1 trillion in funding market injections!

• These operations will continue on a weekly basis using one- and three-month maturities. This is key because it provides liquidity/funding for a “term” period, not just overnight.

• More to come? We’re going to be keeping a watchful eye out between now and the Mar 18 FOMC meeting.

• Another rate cut sure seems to be in the cards, but in my opinion, they are of little utility here—IT’S THE FUNDING MARKETS!

• Today’s announcement is a step in the right direction, but I would like to see more. Give it all you got! Now is not the time to be cute…

• Be even more proactive and reinstall the financial crisis playbook, reopening the “alphabet soup” facilities that were used then.

• Avoiding stresses in the funding markets should be the Fed’s primary goal.

• Let fiscal policy aid the economy. Given the toxic situation in DC, I know this seems like a tough call, but Congress and the White House need to come together and pass something now!

• The only way to break this negative feedback loop is monetary and fiscal policy acting in coordination. The Fed is doing its part…