Inflation Huge: Jay Powell Did Blink, But It Had Nothing To Do With ‘Taper’

Nearly all participants commented that a standing repo facility, by acting as a backstop, could help address pressures in the markets for U.S. Treasury securities and Treasury repo that could spill over to other funding markets and impair the implementation and transmission of monetary policy. In this regard, a number of participants noted the potential for pressures in short-term funding markets to arise from time to time, even with monetary policy operating in an ample-reserves regime. [emphasis added]

“…even with monetary policy operating in an ample-reserves regime.”


Think about this for a moment, and then think about the Fed writing it out. Everything since Econ 101 has been bank reserves, bank reserves, bank reserves. Suddenly, hey, maybe there’s more going on. 

Forgot about the absurd standing repo facility (recalling instead how useless and ineffective it had been from late February 2020 right on through to the end of March), these people just admitted, in public, in writing, that maybe, possibly bank reserves, hugely abundant bank reserves, perhaps these are not the endpoint of systemic “liquidity” therefore effective money we’ve let the world think they’ve been.

Money is, in fact, much, much more complicated and even these empty suits are now ready to confess it just might have something to do with – among other things the Fed’s yet to discover – “Treasury repo that could spill over to other funding markets.”

On the one hand, no sh–. On the other, it’s such a baby step into this wider world that had first opened so wide more than half a century ago.


With only a partial understanding here, of course, they go on to get the rest absolutely wrong (including any positive thoughts whatsoever about their standing repo facility at whose end lies…bank reserves).

Powell blinked and it does mean inflation, too, just not in the way it’s being described about “taper.” Instead, the FOMC minutes admit that regardless of how many bank reserves there remains a non-trivial potential for systemic non-trivial real money problems. Thus, deflationary factors would obviously remain which would contribute, as they have for nearly fourteen years, to the lack of inflation.

You’re sick of reading about bank reserves and believe it or not I’m positively exhausted for having ripped them up for so long. The reason for it is that these accounting byproducts have occupied an unearned pedestal in the presumed money hierarchy if only because they’ve been placed there by a wholly incomplete (grossly outdated) worldview.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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