FAST FIVE: Watch Live: Will Fed Chair Powell Give The Market What It Wants?
The bond and stock markets are definitely calling Jay Powell's bluff ahead of his speech as chatter of The Fed “losing control” of the yield curve and the potential disaster of the expiration of SLR exemption have the Fed Chair cornered into, at minimum, hinting at one and/or the other during today's virtual event hosted by The Wall Street Journal.
Newsquawk provides a quick overview of what to expect: In remarks last week, Fed officials largely avoided talking about the bond slide, and the implications for the Fed's reaction function.
This week, however, officials have been clamouring to reiterate the tools that the Fed has available at their disposal to manage any inappropriate market behaviours, and accordingly, there are building expectations that the Fed chair will also comment on the theme later today.
In April 2020, the Fed exempted Treasuries and reserves from banks SLR, which allowed them to build balance sheets by purchasing Treasuries — this arrangement is set to expire at the end of March, and if it were not extended, banks would have to hold more capital against their holdings of Treasuries, which would likely result in reduced demand for government debt, perhaps triggering in a wave of Treasury selling, which could reduce funding for other Treasury investors, stoke volatility in fixed income markets, and potentially result in significant market disfunction.
So will Powell hint at Twist 3.0 (implicit YCC) and/or SLR exemption.