FAST FIVE: Goldman Expects QE4 To Start With A Bang: The Fed Will Buy $60BN Monthly For 4 Months

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Goldman Expects QE4 To Start With A Bang: The Fed Will Buy $60BN Monthly For 4 Months One month ago, and roughly four weeks before Fed Chair Powell “stunned” markets by announcing the Fed would resume its permanent open market operations, i.e., bond purchases, i.e., permanent balance sheet expansion , i.e., QE, we laid out precisely what was about to happen in “The Fed Will Restart QE In November: This Is How It Will Do It.” As we explained at the time, the dramatic recent blow out in the Fed Funds-IOER spread indicated that there was a roughly $400 billion shortage in reserves.

By mentioning “the purchases of Treasury bills we are contemplating” (which likely means both T-Bills and short coupons), Powell implied that the FOMC is willing to use a different composition of purchases to engineer the needed shift upward in the level of reserves.

Exhibit 1 summarizes the bank's updated projections for the Fed's gross Treasury purchases: We expect the FOMC to announce additional monthly purchases of about $60bn for four months, split across Treasury bills and short maturity coupon Treasuries.

While unquestionably meaningful, as long as these purchases are spread across the course of the month, Goldman believes “they should be manageable.” Why.

As such, $66bn in purchases over the course of a month would only represent about 1.3% of total volume in the sector.

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