2020: The Fed and Q-4’s Initiation


Last September something happened in the “repo” short-term financing market. Liquidity dried up, interest rates spiked, and the Fed stepped in to save the day.

On 12 December a New York Fed statement said its trading desk would increase its repo operations around year end “to ensure that the supply of reserves remains ample and to mitigate the risk of money market pressures.”

The NY Fed describes its plans thusly, the desk will offer “at least” $150-B here and “at least” $75-B there.

The US does not have negative rates, but the Fed is giving banks negative credit limits.

Here’s the official line, from the FOMC mins of the unscheduled 4 October meeting at which the policy makers approved the operation.

“Staff analysis and market commentary suggested that many factors contributed to the funding stresses that emerged in mid-September. In particular, financial institutions’ internal risk limits and balance sheet costs may have slowed the distribution of liquidity across the system at a time when reserves had dropped sharply and Treasury issuance was elevated.”

Whatever the reason, it was severe enough to make the FOMC agree to both repo operations and the purchase of $20-B a month in Treasury securities and another $20-B in agencies.

It insists the latter is not QE, but it is and President Trump got his way. No more rate hikes, and the money machine is printing, and the stock market responded in a Very Bullish manner.

Tuesday, the major US stock market indexes finished at: DJIA -119.70 at 28583.59, NAS Comp -2.88 at 9068.61, S&P 500 -9.10 at 3237.18

Volume: trade on the NYSE came in at 792-M/shares exchanged

  • NAS Comp+1.1% YTD
  • S&P 500 +0.2% YTD
  • DJIS +0.2% YTD
  • Russell 2000 -0.6% YTD

HeffX-LTN’s overall technical analysis for the US major market indexes is Bullish to Very Bullish in here.

Looking ahead, investors will receive the ADP Employment Change Report for December, the Consumer Credit Report for November, and the weekly MBA Mortgage Applications Index Wednesday.

Stay tuned…