The Return Of ‘Not-QE, QE’ (Part 2)

Rush Hour On Main Street: Gridlock On Wall Street

If it’s yellow and quacks, as they say, it’s likely a renewed Fed ‘QE’ (quantitative easing) policy. We noted in Part 1 that the Federal Reserve SOMA Account (i.e. Fed’s holdings of Treasuries and Agencies) will, reassuringly, soon start expanding again, possibly at a US$250 billion (circa 4%) annual clip.

But, at the same time, we are schooled by Fed officials that this is “not QE”! So, what is it? US Fed policy makers have plainly been spooked into a re-think by deteriorating repo spreads. We are back in what we previous dubbed a ‘not-QE, QE’ regime, designed to support money markets using all available tools. However, this one prospectively looks to us less well-structured that the previous episode that began in late-2022 and potentially less generous in fuelling liquidity.