FAST FIVE: "The Fed Hasn't Expanded Its Balance Sheet At This Speed Since The Financial Crisis"
Is this a temporary rescue of the repo market or the start of a sustained QE4.
Alternatively, the Fed can recognize that they've found the floor for the total amount of reserves necessary in our new regulatory environment and add some reserves via another round of QE as cushion and grow the total reserves in line with our GDP.
The key metric I'd keep an eye on is the difference between interest on excess reserves and the effective Fed Funds rate, which I show below.
The Fed will continue to buy short‐term securities as necessary to meet demand for reserves and push down the short end of the curve and I'd bet on the yield curve steepening again.
The Fed would rather have a cushion of ample reserves against unexpected repo market blow ups than react retroactively with $trillions/month of open market operation purchases.