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Msg  20868 of 22429  at  9/17/2019 4:44:41 PM  by

MarkfromReston


 In response to msg 20866 by  rlp2451
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Re: Chances of a rate cut drop below 50%

Not sure what you have been reading, but there have been some very good articles about what is going on in the funding markets. As best as I can describe what I read, the funding markets are seizing up for a few reasons. First, the Treasury is increasing the amount of supply of Treasuries that they are issuing. This is because of the added spending in the last spending bill, but also because Treasury drew their cash balances down real low before the debt ceiling got increased, so they are increasing their Treasury issuances to build back that cash balance higher. Second, the banks are out of reserves and because of regulations, they can't fund as much as they used to. So there's more supply and less players that can soak up this supply, meaning the price (e.g. interest rate) has to increase to attract buyers. There are also calendar reasons having to do with corporate estimated tax payments being due.
The guy from Alhambra Partners has been writing about this for weeks if not months.

Commentators have been speculating that these problems are going to cause the Fed to restart QE so that the banks have more funds to soak up this supply since they aren't increasing their reserves by increasing lending to business.

This is real "inside baseball" stuff, but the point is that it can cause an unintentional issue if the funding markets grind to a halt and the effects spill over into other markets.

On the rate cuts probabilities, I think Powell has telegraphed that they will cut 25 bps and that they will remain data dependent. Another article pointed out that it was 11 years (it may have been 12) to the date that Bernanke made the first cut in Fed funds stating the same language that the Fed didn't see a recession coming back in 2008 with the same stats showing weakening as are showing NOW.

The Fed never sees a recession coming and they certainly aren't going to say "Recession dead set ahead" for fear of spooking the markets. They will also try to blame it on Trump's trade tactics, but in reality, the Fed tightened too much and that tightening takes about 12 months to work through the system (meaning we are getting the effects now).



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Replies
Msg # Subject Author Recs Date Posted
20874 Re: Chances of a rate cut drop below 50% Williamlebotschy 0 9/18/2019 3:37:00 AM
20875 Re: Chances of a rate cut drop below 50% rlp2451 0 9/18/2019 7:28:28 AM






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