From Birch Gold Group
It started back in September, when a seemingly “shocked” Fed clamored to regain control as repo rates suddenly skyrocketed.
Then, in October, Federal Reserve Chairman Powell decided to start growing the Fed’s balance sheet “as necessary” with “organic” quantitative easing (QE) in order to try to maintain order in the markets.
Finally, the “confused” Fed cut rates yet again, while Powell “assessed the appropriate path” for the Federal funds rate in the future.
This smorgasbord of activity has resulted in three rate cuts since June, plus the activation of the Fed’s “money printing press” (aka, QE) in September.
Which leads us to today. According to ZeroHedge, “The Fed is now injecting $60 billion per month in liquidity via monetization of T-Bills, a process that has promptly sent the Fed’s balance sheet back over $4 trillion, an increase of $280 billion in 7 weeks.”
You can see the official balance sheet total represented in the graph below:
This concerning development begs the question that has never been satisfactorily answered: How did the Fed’s panic to implement quantitative easing start — and now that it has resumed, will it ever END?
The same ZeroHedge article provides at least one possible answer to the first question:
Starting in late March, something unexpected happened: as the Effective Fed Funds rate drifted higher, it broke above the implicit upper bound on the interest rate corridor defined by the Interest on Excess Reserves. It was not meant to do this.
In the chart below, the arrow on the left points to the moment in March when the Federal funds rate (red line) broke the upper bound (blue line).
The red arrow on the right points to the start of “the September to remember” for Powell, when the repo funds rate jumped to 10% before the Fed scrambled to regain control.
And now the confused Fed may be scrambling again. Thanks to their recent cash infusion, the main Federal funds rate may be heading too far in the other direction.
The Federal Reserve May Have Lost Control of Its Main Tool
One of the Fed’s primary objectives is to keep the official rate of inflation close to 2 percent. Currently, Powell thinks the fund rate has to be kept within a range of 1.5% to 1.75% to achieve this objective.
But right now, the official rate sits at 1.55%, which is only 5 basis points more than the lower boundary. So the Fed rate has swung wildly from breaking the upper boundary to nearly busting through the lower one.
This signals that the Fed has possibly moved the market from too little liquidity to too much. It also signals they may be losing control of interest rates, which is their primary tool for policy decisions. According to Alexandra Harris:
When that rate strays, it tends to signal that the Fed doesn’t have strong control over its main tool for implementing monetary policy, a worrisome prospect for central bankers.
It shouldn’t just worry central bankers, though. If the Fed is so “confused” it can’t get its own rates under control, how can you put trust into what they say next?
Make Your Retirement Stand If the Dominoes Start Falling
Who knows what the Fed will do next? Until they figure it out (if they ever do), you need to prepare yourself in case their wild interventions start tipping economic dominoes.
One thing you can start doing is make your portfolio more resilient if the market goes sideways. Consider adding precious metals like gold and silver to your asset mix as one way to protect yourself against the Fed’s next “solution.”
After 8 long years of ultra-loose monetary policy from the Federal Reserve, it’s no secret that inflation is primed to soar. If your IRA or 401(k) is exposed to this threat, it’s critical to act now! That’s why thousands of Americans are moving their retirement into a Gold IRA. Learn how you can too with a free info kit on gold from Birch Gold Group. It reveals the little-known IRS Tax Law to move your IRA or 401(k) into gold. Click here to get your free Info Kit on Gold.
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Pay attention to when the major Fed players ‘leave for family reason’, go back to academia or just decide it’s time to retire.
None of them want to be holding the bag when the cat jumps out.
In regular speak, there is something wonky about what is happening, but the citizenry are too busy answering every buzz, ring, or quiver from the device in their hands, making sure they have the correct app to open the accompanying message which demands immediate attention.
Now… what were you saying about the Fed? Oh, they added some more digits to the national debt? Well, good. Isn’t that what they are for? To keep track of it all for some imaginary reckoning? Bzzzzzz…. Oops, gotta go. I have a new message and it looks like I’ll need a new app to open it… I’ll just charge it to the account and make minimum payments to infinity.
By the way, that’s not me in italics. I give my phone dirty looks and turn all notifications off, let the battery die and then find it in a day or two. Sometimes, I never find it.
Now, Grooch, for no apparent reason, decided to recover some silver from its previously disclosed location if you know what I’m talking about. He took advantage of a thaw in weather to do that. I thought that was interesting… one of those spinning plates authors keep track of.
Since that stuff has been dead and buried for years, I thought it of note.